Tier-II cities experience expansion of Hotels as leisure travel grows

The post-Covid era depicted a mixed picture for the global hospitality sector, according to a recent HVS-Anarock report.

In 2022, the travel and hospitality industry made a comeback after countries across the globe lifted their travel restrictions, the report highlighted. 

With the improvement in domestic leisure travel, hotel chains have started improving room inventory over the past few years. One might presume that such expansion is taking place rapidly in metro cities but the HVS-Anarock report provides a contrary picture noting that tier-II and smaller towns are faster developing on this trend.

The report shows that the share of hotel rooms in tier-II and tier-III cities increased to 38 per cent of the total inventory at the end of 2022 from 33 per cent four years ago. Whereas the share of hotel rooms in metros reduced to 19 per cent from per cent during the same period. In 2022, 166 new hotels with 14,885 rooms were signed, while 90 hotels with 5,702 rooms were rebranded.

The sector closed the year with occupancy in the range of 59-61 per cent, up 15-17 percentage points (pp) over the previous year and only 5-7 pp lower than the full year of 2019.

“We expect India-wide occupancy to improve to 66 per cent in 2023, which coupled with a 16-17 per cent increase in ARR will push Revenue Per Available Room (RevPAR) to '4,690 during the year, almost 18% higher than the pre-pandemic RevPAR recorded in 2019,” Mandeep Singh Lamba President (South Asia) HVS-Anarock commented in the report.

Agra, Haridwar, Manali, McLeod Ganj, Kasauli, Katra, Mahabaleshwar, Puri, Pushkar, Rishikesh, Tirupati, and Vrindavan were the cities that reported the opening of new hotels in the mid-market and upscale segments. Moreover, the consecutive rise in travel in smaller cities is likely to benefit hotel groups that have a fairly strong presence in mid-market and upscale segments such as Indian Hotels and Lemon Tree Hotels.

Despite the looming threat of a recession in the US and Europe growing global geopolitical issues, and an increase in Covid cases in some countries, the report states that ‘domestic demand will continue to be strong and international travel is also expected to pick up.’ 

It concludes that the beginning of 2023 has been promising, and the outlook for the Indian hospitality industry will remain to look positive in the backdrop of its G20 presidency wherein the country is hosting a number of international events across tier-II cities. Such events will increase demand for hotels in the cities where these events will take place.