India's Hotel Demand Exceeds Supply, Boosting Hospitality Sector: ICRA
India's hotel demand is expected to outpace supply over the next three years, according to rating agency ICRA. This positive demand-supply mismatch is driving higher occupancies and average room rates in the premium hotel segment.
Hotel DemandHospitality IndustryIcraPremium HotelsOccupancy RatesReal EstateNov 10, 2025
ICRA forecasts a compound annual growth rate (CAGR) of 5-6 per cent in premium hotel room additions between 2024-25 and 2027-28, based on its proprietary inventory database. In comparison, demand is expected to grow at a faster pace of 8-10 per cent.
With three years of double-digit revenue expansion from 2022-23 to 2024-25, and the growth momentum continuing in the current fiscal year, the Indian hospitality industry has fared well in recent years. As a result, occupancies across premium hotels are projected to improve by 200 basis points to 72-74 per cent, and average room rents (ARRs) to Rs 8,200-8,500 in 2025-26, 3-6 per cent higher over the previous year.
The addition of premium hotel keys in the current cycle reveals interesting trends, with Tier-II and Tier-III cities showing equal interest alongside the major Tier-I cities. The former has been gaining increasing acceptance as travellers venture into less-explored territories for leisure pursuits, and spiritual travel trends gather prominence. Furthermore, supply additions in Tier-I cities are constrained by limited land availability and high land prices, resulting in a focus on alternative markets and the suburbs of Tier-I cities.
ICRA believes that this widespread trend of supply additions across markets reduces the risk of concentrated supply additions and surplus supply in select markets. It augurs well for holding up the ongoing upcycle in the sector, as the supply addition in Tier-I cities is unlikely to satiate the increasing demand, while Tier-II and Tier-III cities remain relatively underpenetrated markets for the premium hoteliers even with the proposed supply pipeline.
Certain pockets within the hospitality segment, such as airport hotels and spiritual tourism, have garnered significant interest over recent years, with 2,000-2,500 premium keys in the pipeline in each of these segments, which is estimated to be around 10-15 per cent of the total premium supply pipeline. While the airport hotels are primarily located in the gateway cities of Delhi and Mumbai, the interest in spiritual tourism is a pan-India phenomenon, with locations like Ayodhya, Varanasi, Tirupati, Bodh Gaya, Rishikesh, and Prayagraj attracting traffic from all over the country.
Growing disposable incomes and an increasing number of travellers seeking premium travel experiences have been driving demand for more organised hotels, restaurants, and other infrastructure in these spiritual sites. Accordingly, larger hotel chains are adding premium hotel inventory at these places.
ICRA maintains a Stable outlook on the Indian hospitality industry. The rating agency forecasts hotel companies to report operating margins of 34-36 per cent for 2025-26, similar to 35.8 per cent in 2024-25, with a focus on costs and asset-light expansions continuing to support the margin profile.
Frequently Asked Questions
What is the forecasted CAGR for premium hotel room additions in India?
ICRA forecasts a compound annual growth rate (CAGR) of 5-6 per cent in premium hotel room additions between 2024-25 and 2027-28.
How is the demand for hotels in India expected to grow?
Demand for hotels in India is expected to grow at a faster pace of 8-10 per cent over the next three years.
What is the projected occupancy rate for premium hotels in 2025-26?
Occupancies across premium hotels are projected to improve by 200 basis points to 72-74 per cent in 2025-26.
Which cities are showing significant interest in premium hotel additions?
Tier-II and Tier-III cities are showing equal interest alongside the major Tier-I cities, with a focus on alternative markets and the suburbs of Tier-I cities.
What is the outlook for the Indian hospitality industry according to ICRA?
ICRA maintains a Stable outlook on the Indian hospitality industry, forecasting operating margins of 34-36 per cent for 2025-26.
Related News Articles
Mumbai Metropolitan Region Sees 5% Rise in Housing Sales in FY24
Navi Mumbai witnesses highest spike in unsold inventory, while South Mumbai's luxury projects see maximum sales
Revolutionizing Real Estate Investments: Why Rexas Finance (RXS) is a Must-Have for 2024
Real estate tokenization is changing the game for investors, and Rexas Finance (RXS) is leading the charge. With its unique approach to fractional ownership, RXS is making it easier for people to invest in premium properties without breaking the bank.
Mumbai FC Set for Premier League Debut After Star-Studded Inauguration
Mumbai FC, the city's newest football sensation, is all set to debut in the Mumbai Premier League following a star-studded inauguration. The club, founded by industry veteran Ahmed, is poised to make waves in the local football circuit.
Ashar Group Surges to Rs 500 Crore with The Legend at Rs 1.71 Lakh per Sq Ft
Real estate transactions, high-net-worth individuals, luxury real estate, mitra, Mumbai real estate, Pali Hill, real estate market, real estate sales
Kalpataru Partners with Two Housing Societies for Mumbai Redevelopment Projects
Real estate developer Kalpataru Projects has signed redevelopment agreements with two housing societies in Mumbai, marking a significant milestone in the company's expansion strategy. The projects are expected to bring modern and sustainable living spaces
Surat Property Sealed Under Disturbed Areas Act: What You Need to Know
A recent property sale in Surat has sparked controversy as the flat was sealed by authorities for allegedly violating the Disturbed Areas Act. This article delves into the details of the case and explains the implications of the Act for property buyers an