India's hospitality industry to grow at 10.5% over next three years: report

India's hospitality industry is projected to grow at a Compound annual growth rate (CAGR) of 10.5 per cent over the next three years, Axis Securities said in its latest sectoral report.

This will generate an annual incremental demand of ₹8,200 crore, it added. This growth will be driven by domestic travelers, foreign tourists, and the MICE segment.

Limited supply of luxury rooms indicates robust demand and expansion going ahead, as per the observations. As estimated by the report, the total hospitality industry in India currently comprises 212,000 rooms, translating to an industry size of ₹82,000 crore.

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The domestic travellers are expected to contribute around 50 per cent in the industry's growth. The foreign tourist arrivals, accounting for 30 per cent of the incremental growth; and the MICE (Meetings, Incentives, Conferences, and Exhibitions) segment is likely contributing the remaining 20 per cent, it added.

"These factors are expected to remain sustainable over the next three years and will significantly drive sector growth," the report added. The demand continue to be outpacing the supply as hotel sector is experiencing high demand, but supply is struggling to keep pace.

Citing a report by Hotelivate research, it said that demand is expected to grow at a 10.8 per cent CAGR annually, while overall supply is anticipated to rise by 8 per cent. By 2027, the number of hotel rooms is projected to reach 241,000, up from the current 188,000. From 2024 to 2027, an estimated 18,000 rooms per year will be added, as per the report.

It highlights that the demands in the hospitality sector is not just limited to the metro or Tier 1 cities but the Tier II and III cities are also witnessing a robust demand. The Tier II and III cities are also experiencing a 13 per cent annual growth in demand, while supply growth in these regions is slower at 10 per cent.

"Enhanced road connectivity and expanded railways are fueling growth from rural to urban areas, further boosting demand. The Indian hotel industry is strategically positioned to capitalize on these trends, contributing significantly to the tourism sector and overall economic growth," the report added citing the factors supporting the demand.

Further, the analysis observed that despite an average addition of roughly 18,000 rooms yearly, the six leadingplayers in the listed space contribute to about 30 per cent of the total annual room increment.

This cautious and stable approach is due to the market size growing faster than the rate at which industry leaders are adding new rooms, it said.

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