Hotels are bustling despite absurd prices. But for how long?

Five-star deluxe hotels across the country increased their average nightly rates by over 20% in 2023-24, while standard five-star stays weren’t far behind with a nearly similar raise, according to a new industry report. Across the board, luxury getaways and business trips are costing more than ever.

Notwithstanding a brief dip in room rates in the first half of this year (owing to the general election and heat waves across the country), hotel room rates shot up by as much as 62.7% between 2021-22 and 2023-24.

At high-end stays such as Marriott, Oberoi and Taj, the price surge—known as average daily rates—has been steeper, rising by as much as 75.6%, as per the 2024 edition of the ‘Indian Hospitality Trends & Opportunities’ report by hospitality consultancy Hotelivate shared exclusively with Mint.

Across India, the number of hotels charging ₹7,500 or more per night has nearly doubled, from 360 hotels in FY23 to 520 in FY24. While hotels in smaller cities (tier 2 and 3) too hiked prices, the big increases were mostly in the top-tier cities.

Despite the higher rates, in FY24, hotels across India registered an occupancy rate of 67.5%—the highest in over a decade. Simply put, this means more people are now staying in hotels, and hotel room supply is booked two-thirds of the time.

Also read | This holiday season, hotels, tour operators are not banking on foreign tourists

The average daily rate—the typical price charged for a room per night—breached ₹8,055 across categories—the highest ever recorded in the country.

“We expect this year (2024-25) to beat last year again in terms of overall hotel performance, but the growth could be tapered," Achin Khanna, managing partner at Hotelivate, toldMint.

 

IPO upside

In FY24, three hotel companies—SAMHI Hotels, Juniper Hotels, and Apeejay Surrendra Park Hotels—listed on the stock exchanges.

“IPOs have been the theme of FY24 because the perception around investments in hotels is changing. These businesses have now proven their ability to give serious returns to their shareholders," said Khanna.

“Markets are also looking at these businesses more seriously and PE (price-to-earnings) ratios are also higher than they used to be. There has also been some formalisation in a way that the capital backing hotels now is no longer promoter-led but institutional capital," he said.

Even so, India’s branded hotel room supply is still just a blip on the global map. According to the Hotelivate report, India had 180,000 branded hotel rooms at the end of March. That’s a minnow compared with the US, which has more than five million hotel rooms, or China, which has a staggering 16.5 million rooms.

This hasn’t stopped hotels in India from charging higher rates as demand for branded hotel rooms outpaces supply. In fact, nationwide, hotels charging ₹2,500 or less for a room per night have dropped sharply by 35%, from 108 hotels in FY23 to 70 in FY24, according to the report.

Also read | Amid family feud, EIH-owned Oberoi Hotels to develop two hotels in Pune, London

Big city hotels, especially, are driving the surge in pricing. Hotels charging ₹7,500 or more for a room per night in big cities jumped from 156 to 229 in just a year. At the same time, tier 1 markets had fewer hotels in the lowest price bracket of ₹2,500 per night, falling from 176 in FY23 to 149 hotels as of March.

In FY24, the average per-night room rate at five-star deluxe hotels—the most expensive category—went up to ₹15,655, a 20.2% increase from FY23. Regular five-star hotels saw their average room rate per night rise by 19.8% to ₹8,756.

Despite this, five-star deluxe hotels saw 69.2% of their rooms filled in FY24, while regular five-star hotels had 68.3% occupancy.

An overpriced market?

India’s top 10 hotel brands account for about 68% of the total branded hotel supply in India. As of August, of the 20 biggest hotel companies in India, Marriott International was the largest, having added eight new hotels, or 837 rooms, to its kitty this year, according to the Hotelivate report.

Tata group-owned Indian Hotels Company Ltd (IHCL) added 15 hotels (2,145 rooms) to its portfolio. Lemon Tree surpassed Hyatt to become the sixth-largest hotel company in India, followed by IHG and Concept Hospitality (it runs the Fern brand). Additionally, Royal Orchid overtook Sarovar and Wyndham to occupy the 10th position.

“India being a decades-long growth story continues. Till the end of September 2024, we signed more than 5,000 hotel rooms this year across over 30 projects (in India)," Rajeev Menon, president, Asia Pacific (excluding China), Marriott International. “The opportunity India represents is tremendous."

He added that Marriott’s loyalty programme was growing “at an exponential pace" with more than 6 million members in India.

Also read | Indian hotels added record number of rooms in 2023. Now they need to fill those

According to the Hotelivate report, India’s hotel sector continues to perform well in FY25, with overall growth in the first half of this financial year ahead of the corresponding year-ago period.

However, growth has slowed in some domestic markets and even contracted in a few areas. Leisure hotels, having recently raised their rates, are seeing lower demand. Demand for hotel rooms in Goa declined “as of early 2024/25, prompting concerns about future trends", Hotelivate said.

Also, the number of international tourists visiting India still hasn’t reached pre-2019 levels. On the other hand, more Indians are opting for international destinations such as Thailand, Sri Lanka, the UAE, and Turkey over domestic spots like Goa or Udaipur, encouraged by affordable airfares.

“Some hotel segments have outpriced themselves, the effect of which is visible in some leisure destinations," said Khanna of Hotelivate. “While some cities will see good growth, there is a high chance there will also be de-growth in some cities (in the second half of the year)."