India's Hospitality Industry to Surge with a 10.5% CAGR over the Next Three Years

India's hospitality sector is poised to expand at a 10.5% CAGR until 2027, driven by domestic travelers, foreign tourists, and the MICE segment. Despite high demand, supply remains constrained, particularly in luxury rooms. A projected 18,000 new rooms per year will bridge the gap amidst growing market dynamics.

India's hospitality industry is set to grow at a compound annual growth rate (CAGR) of 10.5% over the next three years, according to a report by Axis Securities. The sector's annual incremental demand is expected to reach Rs 8,200 crore, driven by domestic travelers, foreign tourists, and the MICE (Meetings, Incentives, Conferences, and Exhibitions) segment. Despite limited supply, especially in luxury rooms, the demand remains robust.

Currently, the Indian hospitality industry comprises 212,000 rooms, valued at Rs 82,000 crore. Domestic travelers are projected to contribute to 50% of the industry's growth, while foreign tourist arrivals and the MICE segment will account for 30% and 20%, respectively. These trends are expected to sustain over the next three years, with demand outpacing supply as the hotel sector struggles to keep up.

The report by Hotelivate research indicates demand will grow at a 10.8% CAGR annually, with supply growing by 8%. By 2027, the number of hotel rooms is anticipated to reach 241,000, up from the current 188,000. The sector will see an average annual addition of 18,000 rooms from 2024 to 2027. Growth is not just limited to metro or Tier 1 cities; Tier II and III cities are also experiencing robust demand, growing at 13% annually, with supply lagging at 10%.

Enhanced road connectivity and expanded railways are boosting demand from rural to urban areas, positioning the Indian hotel industry to capitalize on these trends and contribute significantly to tourism and economic growth. Despite the addition of around 18,000 rooms annually, the six leading players in the listed space contribute only 30% of the total annual room increment. This cautious approach is because the market size is growing faster than industry leaders are adding new rooms, the Axis Securities report concluded.

(With inputs from agencies.)