India's hospitality industry is set to grow at a Compound Annual Growth Rate (CAGR) of 10.5% over the next three years, generating an additional annual demand of INR 8,200 crore, driven by domestic travellers, international tourists, and the MICE segment. Domestic travellers will contribute around 50% to this growth, with foreign tourists and MICE segments accounting for 30% and 20%, respectively. By 2027, the number of hotel rooms is expected to increase to 241,000. Demand is strong across Tier II and III cities, with a 13% annual growth, although room supply in these areas grows slower at 10%. Enhanced connectivity is further boosting this trend.
According to Axis Securities' latest sectoral report, India's hospitality industry is expected to expand at a Compound Annual Growth Rate (CAGR) of 10.5% over the next three years. This growth will result in an additional annual demand of INR 8,200 crore. The increase in demand will be fuelled by domestic travellers, international tourists, and the Meetings, Incentives, Conferences, and Exhibitions (MICE) segment. The report also notes that the limited availability of luxury accommodations suggests strong future demand and potential for expansion.
Domestic travellers are projected to account for approximately 50% of the industry's growth. Foreign tourist arrivals are expected to contribute about 30% of the incremental growth, while the MICE (Meetings, Incentives, Conferences, and Exhibitions) segment is anticipated to make up the remaining 20%. The report highlights that these factors are expected to sustain their impact over the next three years, significantly driving the sector's expansion.
Demand in the hotel sector continues to exceed supply, with high demand outpacing the industry's ability to expand. According to the report, the Indian hospitality industry currently includes 212,000 rooms, representing a market size of INR 82,000 crore.
By 2027, the number of hotel rooms is expected to increase to 241,000, up from the current 188,000. The report indicates that approximately 18,000 new rooms will be added annually from 2024 to 2027. It notes that demand in the hospitality sector is extending beyond metro and Tier 1 cities, with Tier II and III cities also experiencing strong demand. These cities are seeing a 13% annual growth in demand, while the growth in supply is lagging behind at 10%.
The report noted that improved road connectivity and expanded railway networks were driving growth from rural to urban areas, which in turn was further increasing demand. It stated that the Indian hotel industry was well-positioned to leverage these trends, making significant contributions to the tourism sector and overall economic growth. Additionally, the analysis observed that, although approximately 18,000 new rooms are added annually on average, the top six players in the listed sector account for about 30% of this annual room increase. This cautious and steady approach is attributed to the market expanding faster than the rate at which these industry leaders are adding new rooms.
In conclusion, India's hospitality industry is ready for significant growth, with a projected CAGR of 10.5% and an additional annual demand of INR 8,200 crore over the next three years. This growth will be driven by domestic travellers, international tourists, and the MICE segment. By 2027, the number of hotel rooms is expected to increase to 241,000, with substantial demand extending beyond metro areas to Tier II and III cities. Enhanced connectivity is further fuelling this expansion. Despite an average annual addition of 18,000 rooms, leading players are cautiously expanding, as demand outpaces room supply growth.
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