The Indian hospitality industry is undergoing a significant upcycle, driven by a combination of robust domestic demand, favorable demographics, increased investments, and improvements in infrastructure and connectivity, according to a recent report by CareEdge. This surge in demand is outpacing the supply of hotel rooms, pushing the sector into a strong growth phase.
According to the CareEdge report, the Indian hospitality sector witnessed a solid 14% growth in Revenue Per Available Room (RevPAR) in fiscal year 2024. Building on this strong performance, RevPAR is expected to rise by 8-9% in FY25. This increase will be driven by sustained domestic demand and limited supply growth, positioning the sector for continued expansion over the next few years.
Currently, India has approximately 166,000 branded hotel rooms. Over the next five years, the industry is projected to add around 55,000 new rooms, with supply growing at a Compound Annual Growth Rate (CAGR) of 4.5-5.5%. Despite this anticipated growth, the demand for hotel accommodations is expected to continue outstripping supply, creating a favorable environment for hotel operators.
The segment mix is also evolving, with over 60% of new supply concentrated in the Upper Midscale and Midscale Economy categories. This shift is being fueled by the expanding middle class, an increase in business travel, particularly from small and medium-sized enterprises (SMEs), and the growth of business activities in Tier 2, Tier 3, and Tier 4 cities. More than 70% of the upcoming hotel supply is expected to be developed in these emerging markets, as hotel operators seek to meet the growing demand outside of major urban centers.
Another significant shift in industry dynamics is the increasing preference for asset-light models among investors. These models allow hotel operators to expand their footprints and boost profitability without heavy capital investments, enabling more flexibility and faster growth in the competitive market.
“On the back of the surge in domestic consumption and underlying GDP growth, the players in the industry are witnessing strong capacity utilization,” said Ravleen Sethi, Director at CareEdge Ratings. “With a sharp increase in capacity utilization, combined with stable supply growth, hotels are seeing significant potential to yield demand for branded hotels, which will support strong Average Room Rates (ARR) and even drive further growth in the medium term.”
Sethi added that while international travelers have yet to make a major contribution to the sector’s recovery, domestic demand remains the key driver. The continued momentum of domestic travel is expected to sustain the current growth trajectory, with demand likely to outpace supply in the coming years.
CareEdge Ratings predicts that the Indian hospitality sector will report an average RevPAR of Rs. 5,200-5,400 in FY25, representing a growth of 8-9% over FY24. Furthermore, the sector is expected to continue its upward trajectory, with RevPAR projected to grow by an additional 5-6% in FY26.
