India’s hospitality industry to grow at 10.5%

India’s hospitality industry is projected to grow at a compound annual growth rate (CAGR) of 10.5 per cent over the next three years, Axis Securities said in its latest sectoral report.

This will generate incremental demand of Rs 8,200 crore annually. This growth will be driven by domestic travellers, foreign tourists and the MICE segment. According to comments, the limited supply of luxury rooms indicates strong demand and further expansion.

According to the report, the total hospitality industry in India currently has 212,000 rooms, valuing the industry size at Rs 82,000 crore.

Domestic tourists are expected to contribute nearly 50 per cent of the industry’s growth. Foreign tourist arrivals will account for 30 per cent of the growth; and the MICE (meetings, incentives, conferences and exhibitions) segment is expected to contribute the remaining 20 per cent.

“These factors are expected to persist over the next three years and provide significant impetus to the sector’s growth,” the report said.

Demand continues to outstrip supply, as demand in the hotel sector is high but supply is struggling to keep up.

Citing a report by Hotelivate Research, it said demand is expected to grow at a CAGR of 10.8 per cent annually, while the overall supply is projected to grow at 8 per cent.

The number of hotel rooms is projected to grow from the current 188,000 to 241,000 by 2027. An estimated 18,000 rooms will be added each year from 2024 to 2027, according to the report.

It highlighted that demand in the hospitality sector is not just restricted to metros or tier 1 cities, but tier 2 and 3 cities are also witnessing strong demand.

Demand is also growing at an annual rate of 13 per cent in tier II and III cities, while the supply growth rate in these areas is 10 per cent.

Citing factors supporting the demand, the report said, “Enhanced road connectivity and expanded railways are driving growth from rural to urban areas, further driving demand. The Indian hotel industry is strategically positioned to take advantage of these trends, contributing significantly to the tourism sector and overall economic growth.”

In addition, the analysis found that despite an average increase of about 18,000 rooms annually, the six leading

Players in the listed sector contribute to around 30 per cent of total annual room growth.

This cautious and stable outlook is because the market size is growing faster than the rate at which industry leaders are adding new rooms, he/she said.