The outlook for the hospitality sector in India is looking positive after a strong vaccination programme, reopening of borders, removal of travel restrictions, and sustained economic growth putting the sector on a recovery path. It is now expected that over $2.3 billion in investments are expected over the next two – five years. Around more than $0.4 billion of investment is expected during the 2020-2023 time frame.
This was revealed in a recent report titled 'Indian Hospitality Sector: On a Comeback Trail’ by the real estate consulting firm CBRE South Asia Private Limited. The report observed that 12,000 hotel rooms are likely to be added in 2023, and the number of rooms is expected to grow at a CAGR of 3.3 per cent by 2025.
The report estimates that a recovery in demand will remain ahead of supply addition, which will augur well for the key metrics of the hospitality sector’s performance. The report states that the demand over the next few years is likely to be more equilateral and broad-based rather than being centered across only select cities or markets. The CBRE expects this steady supply growth to continue for the next few years.
Interestingly, as per the report, increasing investor interest has been one of the significant drivers of growth for the Indian hospitality segment in the past couple of years. For instance, Kotak Realty Fund recently invested more than Rs 1,100 crore in Bharat hotels, the owner of Lalit Hotels that operates luxury hotels, resorts, and palaces in the country; Jujhar Group has entered the hospitality space by acquiring the Fairfield by Marriott Hotel located in Amritsar and Evenstar Hotels (a wholly-owned subsidiary of Oberoi Realty) has acquired a 50 per cent stake in Sahana group’s upcoming five-star luxury hotel in Worli, Mumbai for Rs 1,040 crore.
In addition, Indian companies are also participating actively in this segment by way of investing or expanding their presence. The international presence and acceptance of Indian chains have established the service level and visibility of these brands. The report also states that all industry Key Performance Indicators (KPIs) such as percentage of rooms occupied or occupancy rate; average daily rate (ADR) or average rental revenue per occupied room at a given time; and revenue per available room (RevPAR) and revenue generated by one room are expected to surpass pre-pandemic levels this year. RevPAR witnessed 94 per cent growth in India in 2022 as compared to 2021. According to the report, in 2022, the hotel sector in India saw renewed footfalls and a steady rise in revenue, indicating a smooth recovery from the pandemic.
There were a few trends observed by the CBRE report such as the renewed focus on domestic tourism as domestic visitor spending across India in 2021 stood at about $151 billion, a sharp rise from the previous year, which was hit by the onset of the Covid-19 pandemic and subsequent lockdowns. India also ranked fourth worldwide in terms of domestic travel and tourism expenditure that year. Infrastructure initiatives such as the launch of indigenous semi-high-speed trains such as Vande Bharat Express, have also given a fillip to domestic tourism.
The report also states that off late there has been growing popularity of combining business with leisure travel (bleisure) post-Covid as executives now combine business with leisure trips—giving rise to ‘bleisure’ travel and ‘workcations’. As a result, business hotels are expanding their array of services by including tour packages and pre-planned itineraries for the partners/families of the business traveller as well as wellness breaks in the form of jungle safaris and stargazing setups.
The report also observes that homestays, which have historically been favoured by leisure travellers, are offering business services such as workspace furniture, Wi-Fi connectivity and play areas for children. Additionally, the changing face of religious tourism to alter the type of hospitality demand in the country.
The report also pointed out that ownership and management contracts are more popular business models in India currently, but as the country’s hotel market matures, brands are now considering deploying the franchising business model in India. Several international and Indian-origin brands are now exploring opportunities in franchising across positioning and brands. This trend accelerated in the aftermath of Covid-19 in India after travellers sought trusted brands as they started travelling again after almost two years.