Another consequence of the exorbitant rates in branded hotels is the emergence of a segment comprising unregulated and unorganised hotels and guest houses. This segment is booming in Bangalore, Delhi, and Pune. Bangalore, especially, has 2,000 rooms in the unbranded segment, which exceeds the supply in the branded category. With rates in the branded category so high, unbranded hotels and guest houses are also able to command a good price. In Bangalore, their rates range from Rs 3,000-7,000 per night.

The all-India average occupancy level touching 72 per cent is significant. Said Thadani: “When the average touches the 70-72 per cent mark, it indicates substantial unaccommodated demand.” That’s because of the cyclical nature of demand in the hotel industry: demand is higher during weekends, and again, high during the peak season.

Added Thadani: “The high room rates also mean that the correction in rentals, when supply catches up, will be sharp.” According to an HVS report, Bangalore, Pune and Hyderabad could see correction in rental rates in the short term. In other cities, it will be 3-4 years before supply catches up and rentals rationalise.

The answer to escalating rentals, of course, lies in developing more rooms and at a faster pace. But as Rajendra Thakre, MD of Singapore-based Meuse Hotel and Hospitality, which aims to invest $200 million in India by March 2008 said: “The run up in real estate prices has made it tough to develop hotels here.”