A New Paradigm In Indian Hospitality Landscape
The Indian hospitality industry has evolved over the last 15 years in terms of scale, ownership structures, operations and performance. To put this in perspective, the branded hotel inventory in India stood at c.65,000 rooms in 2010, and as of December 2023 that number has grown by more than 3X, and currently comprises c.207,000 keys. This implies that the average inventory of hotels in key business cities has grown significantly, which is in a way proportionate to the strong corporate travel demand generated on the back of stellar office market performance witnessed in India over the last decade. Today, India is the most active office leasing market in the world which has rendered hotels as the currently most actively looked at asset class in the country.
Furthermore, digitisation of the travel and tourism ecosystem in conjunction with the growth of new destinations due to accelerated infrastructure development, has created new avenues for investments in the travel and tourism space. Given JLL’s depth in capital markets and the investment banking sphere, we are well positioned to provide valuable advice and support to all key industry stakeholders, including hotel owning companies, hotel operators, tourism departments, real estate developers, large corporate houses, private equity funds, banks etc. From assisting first time hotel owners on their investment decisions to the sale of hotel portfolios to institutional players, JLL Hotels has done it all. We are committed to the Indian hotel sector’s growth as the country takes the next big leap in development and investments. With our market leadership position and wealth of experience in real estate, we are ready to shape the next phase of India’s hotel growth story.
JLL is celebrating its 25th anniversary in India, and its hotels business is celebrating its 15-year milestone in India. As a real estate transactions advisory company, JLL has remained pivotal in shaping the Real Estate (RE) Growth Story in India over the past two-and-a-half decades. From land monetisation to leasing to project development and asset management, JLL has played a vital role in conceptualising, creating and managing Grade A assets across the country.
The first three weeks of January have given us a peek into what we hope the near future holds for India and our hospitality industry. The cultural and travel infrastructure materialisation we have witnessed through the establishment of the Shri Ram Janmbhoomi Temple at Ayodhya and the opening of the Mumbai-Trans Harbour Links (MTHL) are proof of the untapped latent demand India wields.
India’s growth story has displayed sustained resilience in 2023, indicating a strong post-pandemic recovery and marking the beginning of the economy’s transition from the Covid19-era to a period of stabilising growth. The hospitality industry, buoyed by the country playing host to major international events such as the G20 Summit, the Cricket World Cup and other regional sports leagues, has showcased a similar growth trajectory which can be attributed to Meetings, Incentive, Conferences, and Exhibitions (MICE) demand, weddings, and year-end festivities.
Hotels in India have also benefitted from the rising interest and growth of complementary industries such as food & beverage, wellness and events such as fashion and entertainment. More and more guests now seek health and well-being focussed curated offerings in their consumption choices. Given this, the industry is evolving and expanding its offerings in tandem with guest preferences and demands.
What’s New in the Branded Hotel Space?
Brand penetration in India has been on an upward trajectory for the last decade and has witnessed a noteworthy jump in the last two years. As of December 2022, brand penetration in India stood at 48 per cent which was lower than developed markets such as Japan and China but was on par with Australia. As of December 2023, the brand penetration in India stood at 52 per cent, which is the highest in the last decade, with over 27 per cent growth in openings by number of keys in CY 2023 as compared to CY 2022.
The year 2023 marked a turning point for hotel supply in India as many unfinished or partially developed hotels that had been delayed due to the Covid19 pandemic saw a resurgence in financing and development. In 2024, we anticipate a continuation of this positive trend in hotel supply with stakeholders placing emphasis on completing their assets.
In the past couple of years, we saw the emergence of some key trends which are expected to influence the industry in the coming years. India’s luxury segment is making a strong foothold in hotels with the introduction of various luxury and premium brands across the country. As of 2023, the premium segment (consisting of luxury and upper upscale hotels) holds 29 per cent of the branded hotel signings and 14 per cent share of the branded hotel openings with respect to total key count.
The midscale segment continues to hold the largest share of hotel signings, especially in emerging markets as these cities become the focus of infrastructural upgrades, tourism policies, and connectivity initiatives. This has further resulted in a variety of unique advisory assignments for us. We have been working very closely with our clients in these geographies on various types of contracts including management and franchisee contracts. JLL, as a leading real estate transactions advisor, has also been a frontrunner in structuring leases and revenue share agreements in the hotel space.
Given a very high demand that the industry has witnessed in the recent past, hotels have emerged as a desired inclusion in mixed-use developments across cities. Given the massive push on airport and related infrastructure developments, hotels have also become a priority around airport districts. JLL has been at the forefront of land monetisation and structured capital market transactions for hotel investors across airports.
Apart from this, the past couple of years have also witnessed strong interest from hotel developers and investors in evaluating branded residences, especially around luxury hotel developments in both, business cities and leisure markets. JLL has successfully advised on branded residential projects across the country in destinations such as Mumbai, Delhi, Bengaluru, Hyderabad, Chennai, as well as leisure destinations such as Goa, various parts of Rajasthan and the Himalayas.
A surge in travel enthusiasm was witnessed in 2023, especially domestic travel, as tourists explored various destinations for a multitude of purposes. The recent opening of the Shri Ram Janmabhoomi Temple is an important example of the untapped potential of religious and spiritual tourism and underlines the need for integrated tourism and connectivity infrastructure. In line with this, the 2023-24 Union Budget displayed the government’s initiative towards this with 50 additional airports, active development of 50 tourist destinations, the incentivisation of states for building ‘Unity Malls’, among others.
Given the infrastructural push and focussed Government initiatives, the hotel industry in key pilgrimage destinations is poised to witness an uptick in branded hotel supply.
We have also witnessed a rising interest to develop new-build hotels and in brand tie-ups for existing hotel buildouts in religious destinations such as Ayodhya, Vrindavan, Tirupati, and Amritsar among others. JLL is an integral part of this growth story as we continue to assist clients on land acquisitions and monetisation, identifying the right opportunities for development, hotel contracts and leases, project development services, and working closely with banks and private equity funds for providing capital for such developments.
The Catalyst – Infrastructure Growth
The Indian Government is driving infrastructure development and encouraging businesses to expand into emerging markets. Key projects in cities like Mumbai and Delhi, with the Mumbai Trans Harbour Link and Dwarka Expressway respectively, are reducing travel times and attracting investors and developers into newer territories within these markets. Other notable projects include the Vizhinjam International Transshipment Deepwater Multipurpose Seaport in Trivandrum and the Delhi-Dehradun Expressway, which are expected to boost real estate activity in their respective regions.
Regional Recovery – How is Asia-Pacific Hotel Market Shaping up?
When looking at the Indian hospitality market in comparison to its counterparts in the Asia-Pacific region, the latter recovered at a steady pace with commercial markets bouncing back with the help of a strong base of tenants from sectors including IT, finance, retail, etc. As of Q4 2023, key markets in countries such as China and Japan registered a 99 per cent and 90 per cent growth in their occupancies and 95 per cent and 121 per cent growth in ADR levels respectively in comparison to the same period in 2019. This can be attributed to the gradual opening of key tourism markets on the back of pent-up savings and a rise in demand with temporary constraints in supply.
India’s commercial and hospitality markets experienced a strong V-shaped recovery, with the hospitality sector benefiting from the rebound. The hospitality market saw a 30% growth in RevPAR in 2023, driven by increased corporate travel, weddings, and MICE demand. This growth continued throughout the year, supported by international events and holiday seasons. In 2024, the preference for premium hotels in metro cities and resort locations, as well as developments near airports and business districts, is expected to fuel further momentum. With government initiatives promoting tourism, infrastructure upgrades, and connectivity, JLL anticipates continued growth in hotel development and investment activity.
The Growth Story of Hotel Brands in India
While Tier I cities remain prominent centres of growth and investor interest, emerging markets have now stepped into the limelight with significant improvements in road, rail and air connectivity, ease of doing business with production-linked incentive (PLI) schemes and multi-modal logistics networks, and the establishment of industrial/ commercial sectors. In CY 2023, Tier I cities saw 36 hotel signings (4,300+ keys) and 24 hotel openings (2,300+ keys). Tier II and Tier III markets saw 232 signings (20,800+ keys) and 164 hotel openings (10,300+ keys).
Traditionally, large hotels comprising 250+ keys and ample banqueting space were concentrated in key business cities on account of strong social and corporate MICE demand. However, signings in 2023 show that these development formats are now expanding beyond the main metros to key leisure destinations such as Jaipur and Goa as they also emerge as centres for social and corporate events.
Of the total number of keys signed in 2023, 79 per cent of the hotels are under management contracts, 14 per cent under franchises, 3 per cent under franchise and managed (manchises*), and 4 per cent under leases and revenue share. In the last two years, we have witnessed an uptick in leases for Tier I cities such as Ahmedabad which is a testimony to the commitment of both owners and hotel brands about this operation model.
What’s Next in Hotel Investments?
From an investment perspective, we believe that both Tier I and Tier II and Tier III cities offer ample investment opportunities in the near future. Investors looking into the hospitality market have indicated their interests in Brownfield/ operational structures and hospitality assets located in proximity to new growth corridors, airport developments, and business districts both in Tier I cities and emerging markets so as to diversify their portfolios. Private equity funds and HNIs lead in terms of transaction volume in 2023, followed by RE developers.
Hotel transaction volume in India in 2023 hit ~US$ 421 million which is 5X as compared to 2022. Of this, US$ 260 million was concentrated in Tier I cities with the rest distributed across emerging markets. Interestingly, nearly 21 per cent of the total volume was transacted for under-construction hotels across tiers. Looking ahead, we expect investment activity to be buoyant and estimate a transaction volume of ~US$ 395 million, characterised by a mixed bag of transactions ranging from marquee hotels in Tier I markets to land leases in airport district.
Our Next Leap
Our biggest strength lies in leveraging the JLL network which further allows us to keep our ear to the group and penetrate various markets, especially across SMART Cities and emerging markets which are currently witnessing an industry and infrastructure boom.
From a transaction perspective, in 2023, the nature of trades in the hotel industry has been unique. We have witnessed a rising interest in the sale of under construction hotels across destinations as well as a steadfast preference for operational assets in key commercial markets. Furthermore, our repertoire of clients has expanded to include airport operators, PE funds, RE developers, large corporate houses, UHNIs, family offices, etc. With the help of our vast investor reach, we look forward to assisting our clients in raising and deploying capital as well as monetising their portfolios and marquee assets.
On the advisory front, our business has grown exponentially in 2023 with the completion of over 50 assignments comprising over 18,000 keys (including feasibility studies, valuation, operator search assignments). This can also be attributed to growing interests in asset classes such as branded residences and the extended stay segment. In 2023 alone, we have completed advisory work for circa 200 units across key business and leisure destinations for branded residences.
Looking ahead, we will continue to expand our investor and client base while penetrating newer markets. As a country and an industry, we are at the tipping point of a structural shift in the landscape. Today, JLL is a strategic partner to variety of clients including RE developers and PE funds, and has been instrumental in growing their hotel portfolios. In the next five years, we believe that the industry will go through significant consolidation and institutionalisation, and we will be in a pivotal position to lead that change and guide key stakeholders.
We will continue to be the catalyst which enables the movers and shakers of the hotel capital markets as we continue leveraging our extensive knowledge and expertise towards remaining integral to the transformation of the industry.
