Investment trends in urban hospitality

The first half of 2024 has proven to be a dynamic period for urban hospitality investments. As global and domestic tourism continues to recover and expand, hospitality investments in Tier I cities have taken centre stage, fuelled by Government initiatives, changing travel patterns and strong investor confidence.

Urban hospitality investments have been driven by India’s growing stature as a global business tourism destination. The latest finance budget stressed upon India’s emerging popularity for “business and conference tourism.” The successful hosting of the G20 Summit and India’s strategic leadership in global affairs have accelerated this trend, shining a spotlight on previously unexplored destinations across the country.

The launch of massive MICE (Meetings, Incentives, Conferences, and Exhibitions) venues like the Yashobhoomi in Delhi and Jio World Convention Centre in Mumbai has created a surge in hotel room demand. Large-scale conferences and corporate events are now extending beyond traditional hubs like Mumbai and Delhi, driving demand in secondary cities and untapped regions.

Moreover, India’s middle class has shown a growing appetite for travel. Business trips are increasingly being combined with leisure activities, spurring the trend of ‘bleisure’ travel. In cities like Mumbai, where the average daily rate (ADR) hit INR 10,641 in early 2024, the hospitality sector is capitalising on this dual-purpose demand. The high occupancy rate of 83 per cent in Mumbai and similar growth in Delhi, Hyderabad and Chennai indicate a thriving urban hotel market, which investors are keen to tap into.

Spiritual and Heritage Tourism
India’s urban hospitality investments have also embraced the booming segment of spiritual and heritage tourism. Recognising the country’s rich cultural legacy, the government has launched initiatives to promote tourism at iconic sites like the Ram Temple in Ayodhya. Government’s proposal to establish iconic tourist centres reflects the growing demand for accommodations in these spiritual and heritage-rich destinations, often within major metropolitan areas that serve as gateways to these sites.

Infrastructure development has played a pivotal role in boosting urban hospitality investments. Under the Swadesh Darshan and PRASHAD schemes, the Indian government has invested heavily in developing tourism-related infrastructure, such as pilgrim facilitation centres, sound and light shows, parking complexes, and safety measures at iconic pilgrimage sites.

In the first quarter of 2024, nearly 3,000 new hotel rooms were signed in states like Uttar Pradesh and Rajasthan, which are key locations for both domestic and international tourists. This is part of a broader strategy to balance urban hospitality investments with tourism infrastructure in culturally significant locations. The Central Government is encouraging states to develop tourist centres and promoting branding and marketing on a global scale to create new revenue streams for the hospitality industry.

The Union Government’s investment of over Rs 469 crore in tourism infrastructure projects and the continued rollout of Swadesh Darshan 2.0 will further elevate India’s spiritual tourism sector. The increasing focus on religious and heritage tourism has fuelled the growth of midscale and boutique hotel chains, catering to the rising number of domestic travellers.

The Hybrid Hospitality 
One of the most notable shifts in urban hospitality investment has been the rise of hybrid hospitality models. This innovative model is specifically designed to attract professionals, digital nomads, and long-stay guests, offering flexibility that traditional hotels often lack. This model has gained traction in Tier 1 cities, where there is growing demand for accommodations that can cater to both long-term residents and short-term business travellers. Hybrid hospitality ensures high occupancy rates by balancing short and long stays, which in turn maximizes revenue streams.

Government Policy and Foreign Direct Investment
Another key driver of urban hospitality investment has been India’s favourable FDI policies. The government’s decision to allow 100 per cent Foreign Direct Investment (FDI) under the automatic route subject to applicable regulations and laws have helped attract over US$ 1.57 billion between FY21 and FY24, with projections of an additional US$ 2.5 billion over the next five years.

The Government’s strong investment in public infrastructure have led to surge in airporthotels as a key investment area. Major projects around Bengaluru and Goa airports aiming to replicate the success of Delhi’s Aerocity. With increasing demand from both business travellers and tourists, investors are increasingly drawn to this segment.

The National Single Window System and Foreign Investment Facilitation portal have further simplified the process for foreign investors, creating a conducive environment for large-scale hospitality investments in major city centres. The government’s continued focus on improving ease of business and attracting FDI positions India’s urban hospitality sector for exponential growth in the coming years.

In conclusion, the urban hospitality sector in India is experiencing a remarkable transformation in 2024. The Indian hospitality market is poised for sustained growth, with projections estimating a compound annual growth rate (CAGR) of 13.96 per cent from 2024 to 2029. The market is expected to reach a valuation of approximately US$ 247.31 billion by the end of 2024 and surge to US$ 475.37 billion by 2029.

With a boost from India’s G20 leadership, business and conference tourism is poised to reshape urban investments. Simultaneously, the rise of spiritual and heritage tourism, coupled with the innovative concept of hybrid hospitality, is creating a dynamic and promising landscape for the industry.

It’s safe to say that India’s hospitality industry has entered its golden era, bolstered by Government support, favourable FDI policies and an increasing appetite for domestic travel. The message for investors is clear: India’s urban hospitality market is not only recovering but thriving. The time to invest is now.