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Why investors are putting funds into budget hotels like Stayzilla and OYO Rooms

posted Jun 3, 2015, 10:52 PM by Samarth Homey

Within the heating travel industry, one particular segment seems to be growing at breakneck speed - that of budget shortterm accommodation. Two fledgling companies in the space, Stayzilla and OYO Rooms, have raised $20 million and $25 million respectively so far this year; while Tiger Global is looking at investments in players such as Zo Rooms and Nestaway, ET reported last week. 

Why budget hotels? "With the emergence of middle class and tier II/III cities, budget travel is at an alltime high," said Paavan Nanda, cofounder of backpacker hostel chain Zostel, which launched Zo Rooms earlier this year as a branded budget hotel aggregator. "The demand-supply gap of budget rooms in India is widening and there lies a massive opportunity in providing a well standardised, branded stay to these travellers," he said.

His instinct is not unfounded - in India, there is a massive dearth of short-term rooms on offer for under Rs 2,000 a night, while occupancy rates at the below Rs 1,000 range are at an abnormally high 85%. Meanwhile, new lodging properties are largely priced above the Rs 2,000 mark, owing to soaring real estate costs. This leaves a gaping shortage in budget options for both leisure and business travellers. 

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