India’s hospitality industry is witnessing an unprecedented surge in demand, especially across tier-2 and tier-3 cities, but the growth in hotel room supply is struggling to keep pace. Despite plans to add approximately 15,000 new rooms in 2025, a 50 percent increase over 2024, the supply continues to trail rising demand, a trend experts say will likely persist until at least fiscal 2027.
“India's hospitality sector is currently undergoing a period of substantial expansion, progressively solidifying its position as a global hospitality hub,” said Anshuman Magazine, Chairman & Chief Executive Officer – India, Southeast Asia, Middle East & Africa at CBRE. He added that the hotel room supply has also witnessed a steady increase, with a projected compound annual growth rate (CAGR) of 2.5 percent through 2026. “However, the growth is anticipated to be outpaced by high demand, leading to a positive outlook for the industry's performance metrics,” he said.
According to Hotelivate’s Trends and Opportunity Report, demand is expected to grow at a CAGR of 9.7 percent through FY28, whereas supply will grow at a slower pace. This is already evident in rising sector performance — for instance, Lemon Tree Hotels reported that its average room rate (ARR) rose 10 percent year-on-year (YoY) in Q1 FY26 to Rs 6,236, while occupancy climbed to 72.5 percent from 66.6 percent a year earlier. Revenue per available room (RevPAR) jumped 19 percent YoY to Rs 4,523. This mismatch is expected to push up ARR and occupancy levels across the country.
ITC Hotels also expects demand in the luxury, upper-upscale, and upscale to grow at a CAGR of 10.5 percent between FY24 and FY29, outpacing the 7.4 percent CAGR in supply. ITC Hotels reported occupancies of 73 percent for Q1 FY26, up from 70 percent in Q1 FY25 and 62 percent in Q1 FY24.
“In Bengaluru, I think supply is growing by 7 percent and demand is growing by 10 percent,” said Nirupa Shankar, Managing Director, Brigade Hotel Ventures.
Backing the trend, ITC Hotels’ Q1 investor presentation showed that Bengaluru’s RevPAR in its domestic-owned portfolio surged 71 percent YoY in the year to May 2025, with Hyderabad and Jaipur both up 53 percent.
Why the surge?
One of the major drivers behind this surge is the rise in travel aspirations among India’s growing middle class. According to ITC Hotels, domestic air passengers reached 72 million between January and May 2025, up from 66 million in the same period of 2024 and 64 million in 2023. This is coupled with a revival in business travel, large-scale meetings, incentives, conferences, and exhibitions (MICE) events, and increased interest in religious and leisure tourism.
Shankar sees strong tailwinds for hospitality in India, from rising middle-class travel aspirations to demand generated by economic growth and office expansion. “We are expecting almost 5 billion domestic travellers within the country,” she said.
This growth is underpinned by a thriving domestic economy, Magazine noted. “Tier-2 and tier-3 centres are notably witnessing a surge in demand, propelled by heightened business activity and the escalating aspirations of their middle-class demographics,” he said.
As the sector grows, hospitality companies have also swung to profitability with improved margins. According to Hotelivate’s Q2 FY25 report, most listed hotel companies saw a rise in revenue and profit after tax (PAT) compared to the same quarter last year.
Rising profits
Indian Hotels Company Ltd (IHCL) saw its net profit grow 232.3 percent YoY, while EIH reported a 38.4 percent increase in PAT for the same period. Lemon Tree Hotels and Park Hotels reported a 32.6 percent and 84.9 percent rise in PAT, respectively, the report said.
The report also noted that companies like Chalet, EIH, and IHCL have increased their proposed hotel supply. IHCL, for example, has raised its proposed inventory by 19.6 percent quarter-on-quarter (QoQ). Companies are focusing their expansion on upscale and luxury properties, with 55 percent of the upcoming supply in these categories.
In terms of development geography, new supply is planned across both metro cities and emerging destinations such as Goa, Bodh Gaya, Manali, Pune, Lucknow, Kasauli, Karjat, and Ayodhya. Tier-2 destinations like Jaipur, Amritsar, Agra, and Udaipur are also part of the upcoming pipeline.
While new developments are being planned, the industry continues to face challenges in matching the pace of demand due to factors such as return on equity (RoE) concerns and project approval delays that may be limiting the pace at which new rooms come online.
Meanwhile, as demand continues to surge, especially during high travel seasons, travellers may have to brace for steeper room rates and limited availability of mid-premium hotels until the supply catches up.
Discover the latest Business News, Sensex, and Nifty updates. Obtain Personal Finance insights, tax queries, and expert opinions on Moneycontrol or download the Moneycontrol App to stay updated!
