December 10, 2018
What turns a run of the mill, resource hungry hotel into an Eco Hotel and why does it matter? Well, the clue lies partly in the question: an Eco Hotel isn’t resource hungry at all. Instead of gobbling away at all before it, an Eco Hotel sips and nibbles at its key resources: energy, water and raw materials. Eco Hotels are hard wired to save water and minimise on energy and waste material usage. But what about the second part of the question: why does any of this matter? Look no further than last week’s US National Climate Change Assessment, the work of 300 scientists and 13 Federal Agencies which concluded that “ Earth’s climate is now changing faster than at any point in the history of modern civilisation, primarily as a result of human activities…” Donald Trump may have dismissed the three-inch thick report out of hand as “largely based on the most extreme scenario”, but virtually nobody else is.
And for a President so intent on wrapping himself in a mantle of economic competence (and hotel owner to boot), the supreme irony is that key policies at the heart of a concerted response to adverse climate change are now proving to be drivers of commercial growth too. Eco Hotels are a case in point.
By definition, a non resource hungry hotel will also have reduced operating costs: it’s also likely to have reduced liabilities, will generally produce a higher return on relatively low risk investments and also deliver greater profitability across the board than its more resource hungry counterparts. Those are the hard conclusions arrived at in the seminal sector report for the subcontinent “Green Hotels and Sustainable Hotel Operations in India” and, perhaps inevitably, the markets haven’t been slow to see their potential either. Green hotels are more popular than ever on the subcontinent and if you need solid evidence of that, look no further than the explosive growth of Lemon Tree Hotels after the company’s successful IPO earlier this year.
Donald Trump could usefully brush up on his bedtime reading before leaving the West Wing to resume control of his own hotel chain …
The travelling public (business and leisure) is now increasingly aware of the importance of environmental compliance when it comes to choosing a hotel room, and the current surge in demand on the subcontinent is running well ahead of supply: not least because India’s tourist numbers have reached unprecedented levels in absolute terms as well.
But when it comes to meeting this burgeoning demand in practice, something much more is required than simply re-branding an existing hotel with “green credentials”. Key consumption variables have to be built in from the very beginning of the construction phase: making water saving devices and waste reduction part of the DNA of the hotel from the outset of the project. That’s why Eco Hotels are being built with solar tubing that reflects light across the hotel day and night, resulting in electricity bills that are roughly half those of a conventional hotel and its properties also has a single kitchen which dramatically reduces the carbon footprint. All those savings go straight to the bottom line.
Red Ribbon is the founder of Eco Hotels, the world’s first carbon neutral hotel brand which offers “green hospitality” as part of a progressive roll out across India designed to take advantage of current market opportunities on the subcontinent. The brand meets all key sustainability criteria without compromising on either quality or standards of hospitality and is designed to cater for commercial and recreational travellers alike.
The boom in Indian tourism (both domestically and internationally) is currently playing a huge part in driving forward the subcontinent’s resurgent hotel and hospitality sector, and as the article says eco credentials are playing a bigger part than ever in determining where this burgeoning tide of travellers are deciding to stay. Recent surveys confirm so called “green credentials” are high up on the scale of priorities when they come to make their choice.
And as the article also says, meeting that demand is certainly not just a matter of a last minute rebranding. To deliver properly on green credentials, the hotel has to be built with eco compliance as part of its structure (from the ground up). Only by doing this will cost savings and sustainability criteria properly come together in the future operation of the hotel, delivering the range of benefits described in the article.
I’m proud that Eco Hotels have done just that from the very beginning of the project, and proud too of the part Red Ribbon has played in developing the brand and its ambitions in the succeeding years, spearheading an environmentally friendly response to India’ resurgent tourism demands.
December 10, 2018
In the late 1980’s Esso commissioned a survey of its UK customers and found less than 7% travelled onto Mainland Europe with their cars. Why this reticence on the part of families clearly capable of making their way from Poole to Provence in an overcrowded Metro? And no, it’s not what you think: back in those days we hadn’t even thought of Brexit. As Esso found out, there was a more homely explanation: the Continent simply had far fewer automated pumps on its forecourts, so drivers were in danger of having to talk with an attendant and you know how the English are with languages. Better leave the car behind than risk the unseemly spectacle of sign language on the forecourt with a Frenchman.
And when you think about it, that’s all quite interesting. It’s the reason petrol stations have gradually come to look exactly the same all over the world: with the pumps all roughly in the same place, all self service and roughly the same kind of shop to pay in. It’s why you can now buy a burger (from a screen) in identical McDonalds outlets from Vienna to Vladivostok without once having to speak a word of German or Russian, and it’s why Esso long made sure you can buy your petrol the same way. There’s simply no need to leave the car at home anymore…so we don’t. We buy more petrol instead and everyone’s happy.
Economists call this phenomenon Brand Synergy and until recently India’s mid-market Hotel Sector was widely perceived to be more or less dead to its charms. A senior analyst on the subcontinent memorably (and anonymously) put it as follows: “…it was like an airline that uses a Boeing 747 for travel between Delhi and Mumbai, a Dakota for Kolkata-Delhi, and a Dornier for Bengaluru-Pune”. The poor old travellers never knew what to expect when they got there. Just like trying to buy petrol by word of mouth.
But not anymore…
The subcontinent’s mid-market Hotels including Ibis Styles, Lemon Tree Hotels and Eco Hotels have all made progress over the last decade in adopting a much more uniform approach to product profiling, achieving a consistency in specification that has now seen the mid-market secure nearly half the branded hotel sector: spurred on, no doubt, by an increasing number of private equity investors, none of whom are noted for being slow in recognising brand synergies when they see them.
All of which has made the mid-market uniquely well placed to take advantage of the surge in India’s middle class and increasingly urbanised travellers that has doubled airline occupancy rates over the last seven years. And with the average cost of building a mid-market room coming in at between Rs 3 Million and Rs 7 Million, breaking even within six years, it all makes bottom line economic sense too. Compare that with the larger branded chains where average construction cost for each room is Rs 15 Million and break even takes 15 years: more than twice as long. In the past 10 years alone the mid-market has expanded at more than 15% annually (according to Howarth HTL) and now accounts for 43% of total branded stock.
Having got away its successful IPO earlier this year (raising Rs 311 Crore from key investors), Lemon Tree Hotels last week took the trend a stage further by launching its brand overseas: signing a deal for the first of its hotels to open in Dubai next year. It will be the first mid-market hotel on the luxury studded Al Wasi Road, sitting literally in the shadow of the Burj Al Arab and Al Waleed Real Estate’s CEO didn’t miss the significance: “There was a need for a mid-market hotel of this calibre in this location and India has been the largest source of tourists into Dubai, as well as the UAE as a whole, for over three years now.” To save you Googling it up, the exact figure is 13%: India now accounts for a whopping 13% of total tourist numbers into the Emirates, which shouldn’t come as a surprise to anybody given the subcontinent’s wealth and proximity as well as the population’s found mobility.
And now they’ll recognise at least one familiar, distinctively Indian hotel brand when they get there…Plus ca change.
Red Ribbon Asset Management is the founder of Eco Hotels, the world’s first carbon neutral mid-market hotel brand, offering “green hospitality” as part of a progressive roll out across India which intended to take full advantage of current market opportunities on the subcontinent. The brand offers sustainable living without compromising on standards of hospitality and is designed to cater to commercial and recreational travellers alike.
Working as part of the Eco Hotels Project has certainly taught me the importance of branding and product profiling in the hospitality sector, so I was pleased to read about the renewed emphasis on branding generally and unsurprised to see that it has now increased the mid-market share to just shy of 50%. Monolithic 2000 room hotel chains are no longer the first choice for travellers, especially given all the evidence suggests they are increasingly looking for accommodation that also complements their preference for sustainability.
And that’s important because the boom in Indian tourism (domestically and internationally) is playing a significant part in driving forward the subcontinent’s resurgent hotel and hospitality sector. It’s certainly an area that cannot be overlooked when seeking out the best investment opportunities over the coming years.
That’s why I’m very proud that Red Ribbon has played such a significant role in the creation and development of the Eco Hotels Project, spearheading the response to that demand in an environmentally friendly manner.
December 03, 2018
Affordable Housing for India: A Perfect Storm of Opportunity
Mumbai’s skyline has, of course, been transformed beyond recognition over recent years, but its glass pinnacles are well beyond the reach of all but its wealthiest residents. So you need to look closer to the earth to find the true driver behind the subcontinent’s resurgent real estate sector.
India’s increasingly youthful population is moving out of the countryside at an increasing rate in search of better work, pay and living conditions and this is precisely the demographic the Affordable Housing Policy is designed to appeal to, because the dream of having a home (or a flat) of one’s own resonates like nothing else with this new wave of discriminating voters on the subcontinent…and nobody knows that better than Narendra Modi. His Government has aggressively pursued legacy policies on housing with the introduction of a raft of new tax incentives over the course of the last two Union Budgets, including giving infrastructure status to qualifying affordable housing, offering developers increased tax concessions and providing buyers with a range of fiscal incentives including subsidised interest payments.
And it’s not just voters who are being energised: investors are responding positively too in increasingly ingenious ways. For example, because banks in India aren’t allowed to finance land acquisitions the Private Equity Fund KKR has moved into the sector to offer development funding directly to contractors, taking an equity stake in the completed project. In what might be taken by some as a statement of the obvious, Sanjay Nayar of KKR India pointed out that “with the right project and partners, there’s good money to be made”.
There is indeed Mr Nayar.
Chris Wood of Citic Securities perhaps put it a little more eloquently: “Affordable housing in India remains one of the most straightforward bull stories in Asian equities. There will be an acceleration in economic activity in India in the coming 18 months driven by housing.”
But there is, of course, at least one (more or less hidden) difficulty with all of that. Given such a voracious and burgeoning consumer appetite coupled with capital market ambition and expansionist government policies, where are all these new homes going to come from? As we have noted previously on this site, stoking up such high levels of demand means India is now committed to building 856 new homes every hour between until 2050. Traditional construction technologies simply aren’t up to that kind of challenge, which is why commentators (including KPMG India’s Director of Real Estate Neeraj Bansal) have pinpointed Modular Construction as the single most important innovator in the sector.
By prefabricating units at scale and off site, Modular Construction is capable of delivering affordable housing on the required scale and at a reasonable cost: three times quicker and half as expensive as traditional construction methods. It is perfectly positioned to meet the demands and opportunities being created by this perfect storm in India’s real estate markets.
As Mr Nayer would probably say over at KKR: “there’s good money to be made”.
Modulex Construction is the World’s largest and India’s first Steel Modular Building Company, working to meet the Challenge of India’s urban housing shortages in a practical and focused manner. It was established by Red Ribbon to harness the potential of India’s dynamic and fast evolving markets, delivering exciting opportunities for investors. Because, when it comes to investing on the subcontinent, nobody knows India and its markets better than Red Ribbon.
Modulex Modular Buildings Plc is the World’s largest and India’s first Steel Modular Building Company, working to meet the Challenge of India’s urban housing shortages in a practical and focussed manner. It was established by Red Ribbon to harness the full potential of India’s dynamic and fast evolving markets, delivering exciting opportunities for investors because, when it comes to investing on the subcontinent, nobody knows its markets better than Red Ribbon.
For me, the key determinant of exponential growth in India’s real estate sector over recent years is the combination of an unprecedented growth in the subcontinent’s population and a rapid trend for its urbanisation: largely, as the article rightly points out, a product of this rapidly expanding population becoming progressively more youthful and more affluent. In time honoured fashion, India’s younger demographic is streaming from village to city with money in its pocket (in the hope of making more).
This is the demographic that Prime Minister Modi has so successfully appealed to through his Government’s re-energised Affordable Housing Programme: the other key factor driving growth in the sector. As with some of his other radical initiatives, the scale and scope of the programme has at times been breathtaking, but in truth it has to be to meet the sheer scale of the challenge.
And when it comes to delivering a workable solution to that challenge it seems to me, as most expert commentators now recognise, that the attraction of Modular Construction is simply inescapable. No other technology offers the pace and scale of delivery needed to meet India’s housing needs. That’s why Red Ribbon was committed to Modulex Construction from the very beginning of the project and we remain committed to it today. I’m convinced it is a vital element in meeting the challenges as well as making the most of the opportunities currently being presented by the subcontinent’s markets.
But none of that should beguile us from forgetting the sheer scale of the housing challenge India currently faces, in common with other leading global economies. Traditional construction technology simply can’t deliver to the scale and pace required by projected demand on existing governmental programmes. No wonder then than Modular Construction is a policy priority for Prime Minister Modi’s Government. It’s only a question of time before others follow suit…
October 08, 2018
Jawaharlal Nehru famously championed “hospitality with responsibility” and riding high as it is on the crest of an unprecedented surge in tourism, India is holding hard to the father of the nation’s message. Not least because public awareness of environmental imperatives has never been higher on the subcontinent, leading Prime Minister Modi’s Government to respond (characteristically) with a programme of market driven “green hospitality” initiatives that embrace everything from streamlined Visa procedures through to water sustainability programmes and everything in between. The result is a striking pattern of explosive growth in India’s important mid market sector where the bulk of those initiatives are currently taking root.
And it’s not all about the environment either, with most analysts also pointing to the importance green hospitality is having on financial performance as well, and not just on the bottom line either where reduced energy costs and leaner waste targets have an obvious potential to cut operating costs. Environmentally friendly policies also have an almost unique potential to attract the new generation of business and social travellers who are placing sustainability at the top of their checklists, with even the hardest nosed business travellers supporting the trend: Deloitte’s, scion of the pinstriped traveller, has published polling results taken from 1,000 businessmen and women, no less than 95% of whom wanted more green initiatives with 38% admitting to checking whether their chosen hotel was sufficiently green before deciding to book.
Put it another way, in less desiccated language not favoured by Deloitte, Eco Hospitality has now become an essential part of Mid Market’s success story on the subcontinent… and there’s no sign of it losing any of that importance any time soon.
Just look at Lemon Tree Hotels and Eco Hotels both of which are blazing a trail in making the most of the opportunities India’s mid market hospitality sector has to offer, each of them pursuing ambitious expansion programmes and delivering above market rate returns for investors.
Red Ribbon Asset Management is the founder of Eco Hotels, the world’s first carbon neutral mid market hotel brand, which has “green hospitality” built into its genetic structure. The company has embarked on an ambitious programme to roll out a chain of new facilities across the subcontinent, designed to take full advantage of market opportunities currently available in India’s mid market segment. The brand offers sustainable living without compromising on quality and will cater for commercial and recreational travellers alike.
India has become something of a crucible to test out trends in the hospitality sector. As most of us will have observed over recent years “green tourism” and “green hospitality” have become increasingly dominant in determining the choice of hotel for business and recreational travellers alike: part of a global environmental trend that seems, ironically, to have picked up pace even more following Donald Trump’s withdrawal of the United States from the Paris Climate accords.
But what makes India different from other bellwether economies worldwide is the sheer pace of the change that is currently taking place on the subcontinent. Number of travellers choosing to travel to and across India has reached an all time high, carriers are reporting exceptional volumes and occupancy rates and the mid sector is picking up a larger percentage of these travellers than ever before. I’m sure that will all in lead to an acceleration of the rate at which the trend for “green tourism” evolves in India as opposed to other markets across the world, meaning we can expect to see green tourism’s importance on the subcontinent before anywhere else.
As the article also points out, Eco Hospitality is an essential part of this trend so I’m very much looking forward to seeing how things develop, especially with Red Ribbon’s Eco Hotel project playing such an important part in the market.
September 14, 2018
What exactly do we mean by Eco Hospitality? McDonalds has its own unique take on things, announcing plans to serve rice at tourist resorts on the subcontinent: rice with extruded cheese or spicy packet sauce. Take your pick. And PepsiCo India has a global sustainability agenda as well, planning to reduce the size of its Lays and Kurkure snacks in a valiant effort to “limit the company’s global footprint”. No sign yet of any plans to reduce the price of the smaller bags though. But beneath these slightly risible gestures there is a serious point. We have all witnessed the cruel after effects of the recent monsoons in Kerala, which have displaced hundreds of thousands and claimed the lives of hundreds more. And global warming is widely identified as a key factor behind the unusually heavy rainfalls.
So its welcome news that with or without extruded cheese on our rice and smaller bags of crisps, the subcontinent is already working at the forefront of global climate change policies, especially since the United States withdrew from the Paris Climate Accords last year, and India certainly knows what Eco Hospitality means because Eco Tourism is now an integral part of its economy.
Take one small example: operating at the epicentre of this month’s flooding in Kerala, the Tourism Department announced an initiative last month which will literally light up tourist spots by installing solar powered street units, including along the entire length of the beautiful Kovalam Beach where LED lighting systems link the seashore to local thoroughfares. The solar units are also hooked up to the Internet through a mobile app that will monitor power usage and report in if units are damaged or tampered with. It all costs Rs 31 Lakh but will save the State much more in electricity costs and, much more importantly, will help preserve the State’s precious environment for the future. There are also plans to extend the project to Varkala and Akkulam.
It might seem slight and insignificant given the scale of the recent disaster, but when Kerala recovers (as it will), it is one step further forward towards addressing the environmental issues that contributed to last week’s events. And on any basis it’s a lot better than extruded cheese and a bag of crisps.
Another good example of an Indian business looking to work in harmony with its environment is Lemon Tree Hotels where every hotel in its chain on the subcontinent will now adopt a stray dog from the local area and give it a home in the lobby. As history tells us, small steps can make a difference if we take them together. And as Eco Hotels has also demonstrated with its innovative “green hospitality” brand, the concept doesn’t just make environmental sense: it makes good commercial sense too, with lower operating and capital costs factoring into a leaner business model. Lemon Tree’s shares jumped 2% in a single day on 17th August, so the model is obviously working.
Red Ribbon Asset Management is the founder of Eco Hotels, the world’s first carbon neutral mid market hotel brand, offering “green hospitality” as part of a progressive roll out across India which is designed to build and expand on economies provided by the platform in conjunction with explosive growth in the Indian tourism sector (and mid market hotels in particular). The brand offers sustainable living without compromising on standards of hospitality and will cater for commercial and recreational travelers alike.
I think we were all shocked to witness the scale of the devastation that has unfolded in Kerala this month, and our best wishes and sympathies go out to all of those who have been so severely affected. But it is right too that we try to understand the reasons behind this, the worst monsoon flooding in India for more than a hundred years and its difficult to resist expert suggestions that global warming and avoidable harm to the environment could well be a major cause. So it is obviously important that we should try to do something about those long-term trends as well.
I am proud that India is working at the cutting edge of climate change policies across the globe and, in however small a way, those policies will I am sure help to make Kerala a safer and more secure, even more beautiful place to live in the future. Eco hospitality is a vital part of that equation for an area which is so heavily dependant on international and domestic tourism. As the article says, small steps taken together can change the world.
August 16, 2018
The World Travel and Tourism Council predicted this month that within the next decade India will be the fourth largest tourism economy worldwide, snapping at the heels of China, the United States and Germany. The Report makes a particularly interesting finding that this trend is not just driven by increasing numbers of international business and tourist travelers: significant growth is being driven from within the subcontinent itself, fueled by India’s rapidly expanding middle class and an increasingly technology literate young population who are quicker than ever to reach for their smartphones to book a holiday. Domestic travel is now the real catalyst for change in a burgeoning hospitality sector with a striking 90% of travelers being Indian Nationals.
No surprise then that In May of this year domestic airlines on the subcontinent reported a 16.53% growth in passenger numbers compared to the same month in 2017, with the Directorate General of Civil Aviation confirming that Indian carriers had transited no less than 11.9 million passengers during that single month. Across the board scheduled carriers flew to an impressive 80% occupancy with Spicejet leading the way at a 94.8% load factor.
These are hugely significant trends for the future of India’s economy, with the hospitality sector having already accounted for more than $230 Billion of the subcontinent’s GDP in 2017 (up from $209 Billion the previous year) and no suggestion that current unprecedented rates of growth in the sector are likely to slow anytime soon.
This pattern of exponential growth shouldn’t come as a surprise to anyone: India has 36 world heritage sites, 103 National Parks (with the Taj Mahal thrown in for good measure) as well as Goa’s beaches, the foothills of the Himalayas and an astonishing breadth of wildlife from tigers and elephants to snow leopards. All of that is bound to attract tourists in large numbers, but such rapid tourist growth can of course bring its own problems, as anyone struggling through St Mark’s Square in mid August can testify. Growth of the wrong kind can threaten the fragile ecostructure of the very locations proving to be so popular with tourists, to such an extent that some of India’s tiger reserves no longer have any tigers to see.
More than 30,000 plastic bottles are left behind each summer by tourists in the high altitude Himalayan Ladakh desert of Jammu and Kashmir and on Mount Everest itself eight to ten tons of waste are left behind on the mountain every year: everything from empty oxygen bottles to rucksacks, tents and discarded climbing equipment.
So there is a balance to be struck: recognising the importance the hospitality sector now has for the subcontinent’s economy, but at the same time striving to support unprecedented growth within the sector in a manner that is sensitive to the needs of India’s precious ecosystem. This is the principal reason for the success of Eco Hospitality as a key driver of India’s mid market hospitality sector: not just because it is the only model striving to get this critical balance right, but because the majority of those travelling on the subcontinent now recognise the risks greater tourist numbers are posing to the natural habitat and are actively seeking out accommodation that supports its preservation.
Red Ribbon Asset Management is the founder of Eco Hotels, the world’s first carbon neutral mid market hotel brand, offering “green hospitality” as part of a progressive roll out across India which is intended to take full advantage of current market opportunities on the subcontinent. The brand offers sustainable living without compromising on standards of hospitality and is designed to cater to commercial and recreational travelers alike.
No surprise indeed that tourists are flocking in unprecedented numbers to the natural beauties and historic splendorous of the subcontinent, but it is still striking to learn just how significant a part internal tourism is playing in buoying up India’s resurgent hotel and hospitality sector. It’s certainly an area which can’t be overlooked in seeking out the best investment opportunities over the coming years and that’s why I’m proud Red Ribbon has played such a significant role in the creation and deployment of the Eco Hotels Project across the subcontinent.
As the article points out, tourists and business travelers alike are looking increasingly for hotel accommodation that is compliant with requirements of eco sustainability, and as the world’s first carbon neutral hotel brand, Eco Hotels are spearheading the need to meet that demand. It not only makes good sense for the environment, it makes good business sense too.
August 16, 2018
On average the phrase “Eco Hotel” is searched at least 4,500 times a day on Google, targeting businesses operating on the subcontinent: stark evidence (if evidence be needed) that travellers of every complexion are increasingly aware of the importance of environmental compliance in their choice of hotel accommodation. But the recent surge in demand for Eco Accommodation is still not wholly matched by supply in India (the subcontinent’s vast expanse currently has less hotel units than the State of New York alone). And it’s not just about the environment either, because Eco Hotels in India are more and more reaping the economic benefits of environmentally friendly operations through reduced room costs and higher occupancy rates.
With unprecedented numbers of tourists and business travellers, the Indian hotel mid market is naturally focusing on the need to meet this key demand matrix: making better use of energy, water and building materials whilst at the same time maintaining the highest standards of service and accommodation quality. This is the successful formula that lies behind the recent growth of India’s Lemon Tree Hotels Group (with a very recent and oversubscribed IPO now under its belt) as well as Eco Hotels, the World’s first carbon neutral hotel brand; both of which are now picking up business at the expense of more traditional, chain operations.
From the point of view of the hotel operator, eco compliance also reduces costs and potential longer-term liabilities, generating a higher return and lower cost investment platform, so it is safe to say that the current trends towards “greener” delivery are likely to continue into the foreseeable future: if only because they make solid business sense too. It helps, of course, that the eco model is also attracting sustained levels of high demand in a largely unsaturated sub continental market.
And the core concept of a truly “green hotel” starts (literally) from the ground up, as part of the original construction process: using renewable building materials and incorporating design features which will eventually make reduced energy and resource allocation part of the building’s DNA, an intrinsic component of its operating structure. Once completed, it comes down to recording current and chronological usage statistics, acting on them and establishing key baselines and targets for future consumption (70% of non compliance variables in the segment involve excess guest consumption, so accurate record keeping is crucial). Inevitably, therefore, most of the day-to-day procedures for “going green” take place behind the scenes of any hotel’s operations.
All of this is also helped (crucially) by a range of key policies and initiatives instituted by the Indian Government over recent years, favouring eco hotel and mid market operation: all of them designed to deliver eco hotels as sustainable business ventures with clear short term deliverables for the environment (and, not unimportantly, profitability too).
Red Ribbon Asset Management is the founder of Ecolodge, a key brand within the Eco Hotels Group, which has an ambitious programme of developing a £1 Billion premium value hotel network, supporting sustainable living without compromising on standards of service delivery. And given the Eco Hotels brand is also modelled to operate from a low cost and high profit platform, it also delivers above market rate returns for investors. What more could you ask for?
I am constantly struck by the fact that the Island of Manhattan alone has more hotel accommodation than the entire, seemingly endless expanse of India’s hinterland: but when you bear in mind that there is also now an unprecedented surge in tourist and business travelers on the subcontinent, most of them looking for eco friendly accommodation, it starts to look like a phenomenon with only one outcome…a resurgent Indian mid market for Hotels and Eco Hotels in particular. Not that we didn’t see it coming. For several years now Red Ribbon has been the driving force behind the Eco Hotels project on the subcontinent, successfully meeting the unique challenges that this congruence of market economics and public demand has generated. But we aren’t just proud of our participation in Eco Hotels; we think it makes great business sense too.
May 02, 2018
27,348 people live on every square kilometre of land in the Mumbai Conurbation, and this figure is expected to grow to 101,066 by 2020 making it the most densely populated area on the planet. This striking statistic is characteristic of the burgeoning and rapidly urbanised population trends which are currently driving the subcontinent’s economic miracle, but those same trends are bringing their own problems as well: a need to create ever greater numbers of residential and commercial units, quicker than ever before and within the severe constraints imposed by already over populated areas such as Mumbai.
But India is rising admirably to the challenge and Modular Construction is a vital ingredient in its urban planning strategies: prefabricating key components offsite and assembling units within the final urban matrix. The process offers significant advantages over conventional building techniques, with clear advantages both in terms of efficiency and final project costing. Rehabilitation models (re-acquiring units after use) are also faster and more efficient with Modular Construction and it has a much-reduced environmental impact too.
Modular Construction is far from being a recent innovation on the subcontinent: the first prefabricated units were erected in India as long ago as 1905 (with a futuristic turn of phrase they were called “ultra-light constructions”) and in those early years stone and logs were the preferred materials, unlike today’s lightweight steel components. Prefabrication techniques took off later with the foundation of the Hindustan Housing Factory in 1953, designed to meet severe housing shortages arising from the influx of refugees from West Pakistan (now Bangladesh). The Indian Government ran the company then (and still does, as Hindustan Prefab Ltd) manufacturing precast concrete components for later assembly on site in a variety of commercial and residential projects. Tata Steel is also heavily involved in the segment at the moment with its “nest system” of prefabrication, as is Modulex Modular Buildings, which operates the World’s largest (and India’s first) steel modular building facility.
The main advantage of modular construction is of course its speed of delivery, with a unique capacity to meet the tightest deadlines imposed by current trends in Indian real estate markets, whilst at the same time adapting to the subcontinent’s relative shortages in on site skilled labour and other key resources such as water. But its other great advantage over traditional construction methods is durability, adopting strict checking mechanisms at the fabrication stage, which enable units to be customised more effectively to the most demanding specifications. The whole process also requires less labour, so it’s cheaper too.
BIM (Building Information Modelling) is now being used in India to pre-plan and visualise the entire process from drawing board to final assembly, making modular construction a much leaner and more efficient process through maximising pre-loaded work off site; and that’s important on the subcontinent in particular where key resources are increasingly scarce.
Yet another reason why Modular Construction is at the forefront of the clutch of key initiatives currently addressing India’s unprecedented surge in demand for residential and commercial real estate.
Red Ribbon played a key role in setting up Modulex Modular Buildings, recognising the company’s outstanding potential to deliver above market rate returns for investors through its ability to tap into unusually high demand levels in Indian real estate markets. The company provides an exciting opportunity for investors to take advantage of this key trend in the fastest growing large economy on the planet.
We are proud of Red Ribbon most ambitious project and India’s first Steel Modular Building Factory, Modulex Modular Buildings Plc: working from a model which enables prefabrication of high quality units to the most stringent specifications and subject to the rigorous demands of western regulation, it offers significant advantages compared to conventional buildings such as cost effectiveness, flexibility and shorter time production. Modular construction can deliver innovative designs while providing a key solution for the sector.
We believe the company is now exceptionally well placed to rise to the challenges being created through the unprecedented demand within India’s real estate sector, both domestic and commercial. And we are confident too that we will be able to deliver above market rate returns for our investors in doing so, through making the most of the opportunities that these challenges will inevitably create.
May 02, 2018
India seems to do everything on a bigger scale these days: the fastest growing large economy on the planet and the highest rate of GDP growth anywhere in the world (currently a shade over 8%). So why settle for just one reason when you can have five? Why settle for one reason to explain the explosive growth in India’s hospitality sector over the past decade, something to tell us whether current growth rates in the sector are sustainable? And in case you’re wondering, the answer to the second part of that question is “yes”, but we’ll come back to that in a moment.
First though the reasons for the sector’s extraordinary growth, and as promised there are five of them: a surge in middle class numbers as India’s population becomes steadily larger and more affluent (in other words, much more consumer led demand); an overall increase in absolute business and leisure travel numbers; rapid urbanisation of the population (meaning that you need more and bigger hotels in densely populated areas); progressive economic growth (the subcontinent’s rising population has more money to spend) and lastly (fifthly, as I’m sure you’re still counting), a doubling in domestic air travel numbers over the last seven years. All these factors have now come together in a perfect storm to booster mid-market hotel brands in India, and that means in particular mid-size business hotels and eco friendly hotels.
In 2002 less than 25% of India’s hotel stock was mid-market in that sense, but this year the equivalent figure was 43% (according to the global advisory firm Horwath HTL). Between 2002 and March 2017 the supply of chain affiliated hotel rooms grew at 11% annually, but this too was outstripped by the mid-market segment, which grew over the same period at an impressive 15%. On any basis that is a striking shift in the market demographic over such a relatively short period, and if it tells us only one thing it is that now is perfect the time for investing in mid market hotel developments on the subcontinent.
And not just because statistics favour the segment so strongly, because development makes more financial sense in absolute terms too.
The average cost of building a mid market hotel room in India is between Rs 3 Million and Rs 7 Million, compared with a major chain development where the equivalent figure is Rs 15 Million which means that a mid market unit will break even faster: within six years rather than twelve for a chain development. The variables are in favour of the mid market too, because these break even projections are based on historic demand and, as we have seen, there has been a recent surge across the sector with current occupancy rates running at higher than 65%. The average room rates have also grown by more than 8% in the last decade, so we can realistically expect break even times to start coming down.
Red Ribbon Asset Management is the founder of Eco Hotels, the world’s first carbon neutral mid market hotel brand, offering “green hospitality” as part of its current roll out programme which is structured to take full advantage of current market opportunities on the subcontinent. The brand offers sustainable living without compromising on standards of hospitality and is designed to cater to commercial and recreational travellers alike.
And the timing couldn’t be better with everything pointing to a mid market surge.
Red Ribbon is the founding force behind Eco Hotels, and continues to support the project’s current roll out across the subcontinent where we are very confident that it will play a key part in the all important mid market sector. Not least because we know that a combination of demographic factors (driven primarily by India’s burgeoning and increasingly urbanised population) as well as the current acute shortage of hotel stock, combine to make the subcontinent’s hotel sector such an extremely attractive sector for investment.
To illustrate that point graphically, it is worth remembering that there are currently more hotel units on the island of Manhattan alone than there are in the entire expanse of the subcontinent. And that supply deficit is bound to create fertile ground for new investment, not least because of the five factors highlighted in the article.
At Red Ribbon we pride ourselves on our in depth knowledge of Indian markets, and the hotel and hospitality sector in particular. With more than a hundred advisers working daily on the ground in the market’s hot spots, we are confident that we can identify the best investment opportunities as they arise, taking full advantage of the trends for growth in this, the most exciting growth market on the world.
January 23, 2018
India has a striking shortage of hotel accommodation, graphically illustrated by the fact there are currently fewer (hospitality) units available across the entire expanse of the subcontinent than are clustered into Manhattan Island alone. It is not, to state the obvious, a particularly stable scenario but for India, the fastest growing large economy on the planet with a burgeoning and increasingly urbanised population, things were never going to stay still for long.
Officials in the Indian Ministry of Tourism reported last month that there was a shortage of at least two lakh hotel rooms across the subcontinent and at the same time India is struggling to manage a surge in tourists and increasing numbers of business travellers from overseas all of which can only exacerbate the market impact of the occupancy shortfall.
And the Ministry of Tourism’s Working Group, entrusted with oversight of India’s Twelfth Five Year Plan (for 2012-2017) also reported last month that annual year on year growth in foreign tourist arrivals into India topped 12% with a projected requirement for additional hotel units for 2016 alone estimated at a staggering 1,90,108.
No wonder then, that a Senior (but unnamed) Official from the Ministry wasn’t in any mood to mince his words on the potentially serious consequences all this can have on India’s economy:
“We are plagued with a huge shortage of hotel rooms and instead of building new ones, we are trying to encourage homestays and exploring other alternatives like tying up with existing known brands with operational hotels and accrediting them.”
So what exactly is being done about all this? Where is the long-awaited change to come from?
There are two answers to that question depending on whether you approach the issue from a long-term macroeconomic level or as a practical, short-term issue.
On a macroeconomic level, the Ministry of Tourism is currently working on the creation of five Special Tourism Zones, which will eventually be designated as so-called tourist hotspots. The idea is that over the course of time (probably the next five years), external investment will be attracted through a range of fiscal stimuli, leading to the eventual construction of new hotel units. And the key to word in that programme, of course “eventual”… As Keynes put it so graphically, “in the long run we are all dead”.
More realistic and practical solutions are likely to be found in a short-term practical response which is where the Modulex Construction concept is coming into its own and is already making a difference to construction shortfalls on the subcontinent, with individual components being prefabricated off site and then assembled locally, quickly and to the highest specifications where the demand for units is most pressing. So there’s no need to wait for fiscal stimulus to attract more conventional construction companies into the area in five years time. The demand can be met now through innovative solutions such as Modulex. And, of course, there’s also a thriving program of Eco Hotels on the subcontinent, meeting the need for additional hotel occupancy without compromising on long-term environmental impact. Again, an innovative short-term answer to a pressing social issue.
And there’s one company behind both Modulex and Eco Hotels: Red Ribbon Asset Management, investing to help meet the needs of today’s markets on the subcontinent without compromising on our future. It’s what makes Red Ribbon different, investing in mainstream investment strategies capable of making a difference today.
We have known for some years about India’s shortage of hotel accommodation but, as the article points out, it was hardly likely that the fastest growing large economy on the planet was ever likely to let things continue as they are for much longer. Developing as fast as it is with major infrastructure projects right across the subcontinent and with GDP projected to grow at 8% this year (the fastest growth rate of any economy globally), Prime Minister Modi’s Government was bound to take action sooner or later in this critical area.
So I am encouraged to learn that the Ministry of Tourism now has solid and realistic plans to address the deficit over the next five years, but in the short term too. We at Red Ribbon are proud to play our part in India’s future through our participation in the Modulex and Eco Hotels Projects which are playing a key part in making things better for all of us, without compromising on the environment or on the future which we all share.