Leisure markets will lead overall recovery

Since 2013, the hotel sector in India was on a growth trajectory with 2019 being a record year in terms of hotel performance as well as hotel development and investment activity. The sector recorded the decade’s highest countrywide occupancy levels of 66.2 per cent in 2019 (as per data published by STR). It also witnessed unprecedented hotel transaction volumes in 2019, recording around US$ 762 million (Rs 5,328 crore) of hotel specific deals. Furthermore, the sector witnessed a strong growth in branded hotel supply registering a CAGR of 9.3 per cent between 2010 and 2019 (JLL Hotels and Hospitality Group).

Hotel signings were also at their peak in 2019, with 208 hotel signings comprising 19,400 keys. It also saw the opening of 114 new hotels comprising 8,650 keys in the same year. Regretfully, 2020 could not pick up from the optimism of 2019 due to the global outbreak of the novel coronavirus (Covid-19). 

Development activities were severely affected by the pandemic, with many owners and developers delaying or shelving projects that were in the planning stage. Branded hotel openings and signings reached very low levels in Q2 2020 during the time of the nationwide lockdown. As the country began to ease travel restrictions from Q3 2020, there was slow improvement in development activities.

Source: JLL Hotels and Hospitality Group

Source: JLL Hotels and Hospitality Group

Though branded hotels’ signings witnessed some growth towards the last quarter of 2020, it has remained flat for Q1 and Q2 2021, registering approximately 2,100 keys each. Hotel openings also witnessed a slight uptick towards the end of 2020. However, it has declined during H1 2021. 

During H1 2021, we have witnessed branded hotel openings of 34 hotels comprising 2,861 keys and branded hotel signings of 48 hotels comprising 4,164 keys. Most new openings are located in Tier 2 and Tier 3 markets which are witnessing faster recovery than major Tier 1 cities. 

Source: JLL Hotels and Hospitality Group

In recent years, we have witnessed significant growth in the midscale hotels segment in India. The trend continues into H1 2021, with the midscale segment being largest in terms of both openings and signings.

Source: JLL Hotels and Hospitality Group

* Whilst commercial markets are witnessing a rather slow recovery, leisure markets led by the great Indian domestic traveller have been resilient. Looking ahead in 2021, we expect that leisure markets will lead the overall recovery with pent up domestic demand. Business travel, which has always formed the lion’s share of most major hotel markets, will continue to see a rather muted recovery.

* We expect development activity to pick up pace in Q3 and Q4 2021 as confidence is returning to the sector with some signings of recovery in corporate travel. Key markets have seen a notable recovery over the last few months, with a significant drop in cases and a gradual resumption of travel.

* Domestic leisure will continue to drive the sector in the near to mid-term, and we can also expect developers and investors to expand their focus from the major metro cities to Tier 2 and Tier 3 leisure destinations. 

* Looking ahead, we are likely to see a thinner future supply pipeline with developers taking a more cautious approach to greenfield development. This could possibly result in a stronger base for the industry going forward. For the Indian hotel industry that struggled with an oversupply in a number of key cities, this could be the one glimmer of hope. The path ahead for the hospitality industry remains incredibly challenging but the industry will emerge from the crisis in a very different form.