India’s hotel sector is on track for sustained expansion as demand continues to outpace supply. According to ICRA, premium hotel occupancies are expected to reach 72–74% by FY2026, up from 70–72% in FY2025.

Average Room Rates (ARRs) are also set to rise 3–6%, reaching ₹8,200–₹8,500, while operating margins are projected to remain stable at 34–36%.

Demand Outpaces Supply

Between FY2025 and FY2028, premium room supply is expected to grow at 5–6% CAGR, while demand will accelerate at 8–10% CAGR. This imbalance bodes well for occupancies and pricing.

India’s premium inventory across 12 major cities surpassed 100,000 rooms in FY2023 and is projected to exceed 120,000 by FY2026.

Srikumar Krishnamurthy, Senior Vice President at ICRA, said,

“The demand-supply gap augurs well for pricing and occupancies, strengthening the industry’s profitability.”

Beyond Metros: Tier-II and Tier-III Cities Lead Expansion

Unlike previous upcycles, this growth phase is more democratised, with significant activity in Tier-II and Tier-III cities. Regional tourism, spiritual travel, and limited land availability in metros are driving new developments across Ayodhya, Varanasi, Tirupati, Rishikesh, and Bodh Gaya.

Airport hotels and spiritual destinations now make up 10–15% of the new supply pipeline, reflecting India’s expanding travel diversity.

Asset-Light Growth and Financial Strength

Hotel chains are increasingly adopting asset-light models, with management contracts and operating leases leading the expansion strategy.

Construction costs have risen 20–25% over the past five years, particularly in metro areas, reinforcing the shift toward low-capital, high-yield growth.

Balance sheets are stronger than ever, with Debt/OPBITDA ratios falling below 2x and interest coverage exceeding 5x — a sharp improvement from pre-pandemic leverage levels.

Positive Outlook for the Sector

ICRA maintains a Stable outlook for the Indian hospitality industry. After three consecutive years of double-digit growth (FY2023–FY2025), the sector continues to benefit from:

  • Strong domestic leisure demand

  • Business travel recovery

  • Wedding and MICE momentum

  • Rising investor interest in mid-tier cities

With these fundamentals, India’s premium hospitality sector is poised for continued expansion, supported by disciplined cost management and expanding brand portfolios.

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