Anticipating sustained accelerated growth in Indian hotel sector
THE UPSWING in travel demand has been truly remarkable, and it’s not merely a fleeting blip on the radar but rather a robust surge poised for sustained momentum. This trend is propelled by overwhelmingly positive market and consumer sentiments, with travel ranking prominently on the wish lists of a majority. As a result, we estimate the Indian hotel sector to conclude the year with an occupancy rate of 63-65 per cent, signifying a substantial 5-percentage-point (pp) increase from 2022 and 1-2 pp below 2019.
Simultaneously, average rates are projected to range from INR 7,200 to INR 7,400, indicating a year-on-year increase of 20 per cent and up 22 per cent from 2019. This upward trajectory translates into a Revenue Per Available Room (RevPAR) of INR 4,600-4,800, showcasing a substantial 30 per cent growth compared to the preceding year and a 20 per cent uptick from 2019 levels. Fuelled by an increased appetite for travel, prevailing positive sentiments, and robust economic growth, the Indian hotel sector is poised for a strong finish to the current year, with an optimistic outlook for the coming year.
What lies ahead?
Looking ahead to 2024, we anticipate sustained accelerated growth in the Indian hotel sector, despite ongoing global headwinds and the upcoming general elections. Growth in niche tourism segments, including religious and spiritual tourism, cruise tourism, and medical tourism, coupled with the Government’s renewed commitment to the industry and sustained focus on infrastructure development, augur well for the sector’s enduring growth. Moreover, state-of-the-art convention centres such as Bharat Mandapam, Jio World Convention Centre, and Yashobhoomi Convention Centre are expected to enhance India’s standing in the global MICE tourism market. As a result, we expect the nationwide hotel occupancy rate to reach pre-pandemic levels of 66 per cent in 2024, with average rates nearing INR 8,000 (32-34 per cent above the pre-pandemic level) during the year.
Top-performing markets and occupancy trends
Despite a gradual decline in revenge travel, leisure markets in the country continued to experience strong demand, with even inbound tourism showing promising signs of recovery. Simultaneously, the MICE, weddings and corporate travel segments have been rebounding, even in the face of the hybrid work culture, online meetings and higher airfares. High-profile events like the G20 meetings and the ICC Men’s World Cup have played a pivotal role in revitalising the fortunes of key commercial hotel markets like New Delhi, Mumbai, and Chennai. These markets have not only reached or surpassed pre-pandemic occupancy levels (as of YTD October 2023) but have also experienced a substantial increase (25-32 per cent) in average rates compared to the pre-pandemic era.
Changes in investment trends
A notable shift we have observed in recent years is the increased adaptability and responsiveness of hotel companies to evolving market dynamics and consumer preferences. For instance, after focussing extensively on business markets in the last decade, hotel companies are now strategically broadening their portfolios in leisure markets and smaller cities that represent the next frontier of growth due to escalating demand and a scarcity of quality hotel offerings. HVS Research shows that during the calendar year 2022, an astounding 86 per cent of all brand signings by properties were in Tier II, III and IV cities. Notably, 47 per cent of these signings were in Tier III and IV cities, while 39 per cent were in Tier II markets. In contrast, the share of Tier 1 cities in total brand signings by properties declined from 22 per cent in 2019 to 14 per cent in 2022. This trend is continuing in 2023, with smaller cities contributing to 82 per cent of signed properties from January to September 2023. However, there is a distinct difference in the average room count across city tiers, with Tier I cities having approximately 115 keys, Tier II markets around 100 keys, and Tier III and IV cities having approximately 70 keys.
In response to shifting consumer preferences, hotel operators have also introduced new brands and diversified into different segments. Prominent instances include ITC’s recent introduction of the Storii brand and Radisson’s Radisson Individuals brand to venture into the boutique segment. Similarly, with increasing demand for alternative accommodation products such as homestays and villa rentals, leading hotel companies are diversifying into these segments; IHCL, for instance, is expanding its presence in the homestay segment through amã Stays & Trails.
Additionally, hotel companies have started embracing technology in their operations to reduce both capital and operating costs, improve profitability, and streamline processes, while enhancing guest experience and personalisation.
Global events impacting fortunes
Hosting major events like the G20 Summit and international sports competitions such as the ICC Men’s Cricket World Cup has unquestionably thrust the country’s tourism and hotel sectors into the limelight, ensuring lasting benefits for these sectors in the future. Yet, the impact transcends these specific sectors, serving as a testament to India’s capability in organising, managing and hosting large-scale events. This success has firmly etched India’s presence on the global map for MICE as well as sports tourism.
These events have proven to be invaluable learning experiences, laying the groundwork for India’s ambitions to host even more significant events in the future. This includes the upcoming 2029 World Athletics Championships, the 2030 Youth Olympics, and the pinnacle of global sports, the Olympics in 2036. However, as India embarks on this journey, it’s imperative to proceed with caution and meticulous planning while addressing critical aspects like infrastructure development, overall event management, security and environmental sustainability, to avoid the pitfalls experienced by other nations during similar pursuits.
HOPE 2024
HOPE 2024 promises to be an unparalleled experience, seamlessly building upon the triumphs of the previous edition. This summit is undeniably a “must-attend” for all professionals in the hospitality and travel industry. It offers them a unique platform to learn from and interact with the who’s who of the global and Indian hospitality, travel, private equity, banking, real estate and retail sectors. Our exceptional lineup of speakers includes globally renowned strategic advisors, architects, tech innovators, start-up gurus, as well as environmentalists, travel writers, authors, poets, and more, all ready to inspire and ignite meaningful discussions. The event is designed to provide unmatched networking opportunities, fostering collaboration and the exchange of ideas among industry professionals.
Thoughtfully curated with the best leaders across sectors, HOPE 2024 will showcase insightful one-on-one chats, panel discussions, keynote addresses, and presentations that explore the key trends shaping the future of the travel and hospitality sectors. An exceptional highlight this year is an exclusive, by-invitation masterclass organised in collaboration with New York University, tailored for the finalists of the #HASHTAG General Managers Awards.
I am genuinely thrilled about the carefully crafted agenda and the stellar lineup of speakers we have secured. To stay informed of the latest updates, I encourage everyone to follow our event website (https://hopeconference.in/), where we will unveil more exciting details in the weeks to come. This edition of HOPE is poised to be a transformative experience, and I look forward to welcoming you to this exceptional event.
AUTHOR BIO: Mandeep Lamba is President (South Asia) at HVS Anarock
