India's hospitality sector continues to experience steady growth, with a notable shift toward tier-II and III cities. The year 2024 saw approximately 25 hotel transactions, with these smaller cities accounting for nearly half of all deals. This trend has expanded the reach of quality accommodations into previously underserved markets, including Amritsar, Mathura, and Bikaner. Investors are diversifying, with high-net-worth individuals and private hotel owners driving transaction volumes. Additionally, the emergence of greenfield projects and sustained interest in tier-I markets signals long-term optimism in the hospitality industry, fueled by a growing commercial sector and government support.
Hospitality Market Growth Driven by Shifting Focus to Smaller Cities
India’s hospitality industry has maintained a steady trajectory in 2024, mirroring growth patterns from the previous year. However, there has been a clear shift in where hotel transactions are taking place. According to a report by real estate consultancy JLL, tier-II and III cities have become increasingly attractive for investors, accounting for nearly half of all hotel transactions during the year. This trend marks a significant evolution in the sector, expanding its footprint into previously underserved regions and addressing the growing demand for quality accommodations outside of India’s traditional hospitality hubs.
Emerging Markets: Tier-II and III Cities Take Center Stage
The report highlights a noteworthy rise in transactions in emerging markets, with cities such as Amritsar, Mathura, and Bikaner experiencing significant investment activity. Historically, these regions have lagged behind larger metropolitan areas like Mumbai, Bengaluru, and Delhi in terms of hotel development. However, the increasing demand for both business and leisure destinations is now driving this shift, with hotels in these smaller cities gaining traction.
The expansion into tier-II and III cities also reflects a broader demographic trend in India. As urbanization spreads beyond major metropolitan areas, there is a growing middle-class population in these regions that is increasingly seeking quality hospitality options. This shift provides hotel operators with new opportunities to tap into underserved markets while benefiting from reduced competition compared to more saturated tier-I cities.
Investor Diversity and Shifting Demographics
The year 2024 also witnessed a diversification in the profile of investors within the hospitality sector. High-net-worth individuals (HNWIs), family offices, and private hotel owners contributed to 51% of the transaction volume, signaling a more personalized and locally driven approach to investment. These investors are increasingly taking a hands-on role in the sector, driven by a desire to capitalize on the growth potential in both tier-I and tier-II markets.
Listed hotel companies, which traditionally dominate the industry, accounted for 34% of transactions in 2024. This signals a more balanced investment landscape, with private players stepping up their presence. Meanwhile, real estate developers and owner-operators accounted for smaller but still meaningful contributions, at 7% and 8%, respectively. These shifts in investor demographics highlight the increasing attractiveness of India’s hospitality sector, particularly as the industry’s fundamentals strengthen.
Growth in Greenfield Projects: Long-Term Confidence in Hotel Development
The report also underscores the strong pipeline of greenfield hotel projects, which in 2024 saw 28,281 keys signed — more than double the number of keys signed in 2023. This expansion is indicative of long-term confidence in the sector’s growth potential, with developers investing heavily in new hotel developments to meet the rising demand for accommodation in both established and emerging markets.
The expansion of greenfield projects also ties into the broader trend of commercial growth in India. With business activity picking up in smaller cities and commercial hubs outside the traditional metros, there is an increasing need for hotels that cater to business travelers, event venues, and tourists. This alignment of commercial growth with hospitality development further supports the industry’s long-term viability and expansion potential.
Sustained Interest in Tier-I Markets
While tier-II and III cities are emerging as the new frontiers for hotel development, tier-I markets continue to be the cornerstone of the hospitality sector. Major cities like Mumbai, Bengaluru, Hyderabad, Pune, and Chennai remain attractive destinations for hotel developments, especially large-scale properties with over 250 keys. The sustained interest in these hubs is driven by robust domestic demand and thriving commercial activity. These markets continue to be the epicenter of both business and leisure travel, offering stability and growth potential for investors.
A Promising Outlook: Hotel Transactions and Government Support
Looking ahead, the hospitality market remains buoyed by investor enthusiasm, favorable economic conditions, and government initiatives to boost tourism. In the first quarter of 2025, JLL has already facilitated hotel transactions in Chennai and Goa, further signaling the market’s dynamism. The government’s recent budget push for the tourism sector is expected to fuel further growth, providing a favorable environment for new developments and acquisitions in the coming months.
JLL’s Managing Director of Hotels and Hospitality, Jaideep Dang, emphasized that the current market conditions present a compelling case for continued investment in both operational assets and land parcels. With an expanding commercial market and a government that is increasingly supportive of tourism, the sector’s growth prospects are as strong as ever.
Conclusion: A Bright Future for India’s Hospitality Sector
India’s hospitality sector is poised for continued expansion, fueled by a growing demand for quality accommodations in both established and emerging markets. The shift toward tier-II and III cities reflects the industry’s ability to adapt to evolving consumer preferences and changing demographic patterns. With increased investment diversity, a robust pipeline of greenfield projects, and sustained interest in tier-I markets, the sector is well-positioned for long-term success. As the country’s commercial markets continue to thrive, the hospitality sector is set to play an essential role in India’s economic development.
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