Given that demand for hotel rooms is outpacing supply and that room rates are predicted to hit all-time highs, Indians will continue to pay more for their stays.
ICRA Limited claims that compared to the post-FY09 global financial crisis era, the current supply pipeline is smaller. Demand rose by 8–10% over the past two fiscal years, while room inventory increased by roughly 5%.
With Demand For Hotel Rooms Increasing, India Sees One Of The Lowest Supply of Hotels in FY24
It is anticipated that this pattern will continue, with demand increasing by 8–9% and supply growing by 4-5% in FY25 and FY26.
Vinutaa S, Vice President and Sector Head, Corporate Ratings at ICRA, highlighted, “The healthy demand uptick has resulted in a pick-up in supply announcements and commencement of deferred projects in the last 24-30 months. Several global brands have made their entry into India.”
Even though there have been more announcements about supply in the last 18 to 24 months, supply is predicted to fall short of demand in the upcoming years.
Vinutaa pointed out that “a large part of the new supply is through management contracts and operating leases,” and that problems with land availability are limiting supply in upscale metro micromarkets.
Greenfield projects are mostly found in suburban areas, while rebranding or property upgrades account for the majority of premium hotel supply additions in major cities.
Up until FY26, 42 percent of the supply pipeline will come from Mumbai and the National Capital Region (NCR).
Mumbai’s Premium Rooms Will Increase From 14250 To 16300 By FY26
Mumbai’s premium rooms will increase from 14,250 in FY23 to 16,300 by FY26, while those in the National Capital Region will rise from 22,450 to 25,100 during the same time frame.
The number of premium rooms in Bengaluru, Chennai, and Hyderabad is expected to reach 14,750, 9,250, and 7,450 by FY26.
By FY26, there will be 1.13 lakh premium hotel rooms available throughout India, up from 1.08 lakh in FY25.
Premium hotel average room rates (ARR) are predicted to increase to Rs 7,800–8,000 in FY25 and then to Rs 8,000–8,400 in FY26, approaching the peak of Rs 8,200 in FY08.
Revenue per available room (RevPAR) for premium hotels across India is expected to rise from Rs 5,000–5,300 in FY24 to Rs 5,500–5,800 in FY25 and then to Rs 5,800–6,200 in FY26.
It is anticipated that occupancy rates will reach a record 74% in FY26, exceeding the 72% pre-COVID peak in FY07.
Despite a minor decline in Q1FY25 because of the general election, pan-India premium hotel occupancy for the first nine months of FY25 was between 70 and 72 percent.
Over the high base of FY24, the revenue of the Indian hospitality sector is predicted to increase by 7-9% in FY25 and 6-8% in FY26.
Low supply addition compared to demand growth guarantees that the demand for domestic hospitality won’t be significantly impacted, even with Indians traveling overseas.
According to Vinutaa, business travel is also expanding significantly.
With the help of transit passengers, business travelers, and MICE events, Mumbai and the National Capital Region are anticipated to report occupancy rates of over 75% in FY25 and FY26.
The demand for mid-scale hotels will increase as a result of rising ARRs in premium hotels.
ARRs in Bengaluru are expected to rise in the high single digits from Rs 7,000 to Rs 7,500 in FY25, while occupancy is expected to rise from 65–67% in FY25 to approximately 70% in FY26.
