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India’s tourist boom is driving demand for mid-market hotels

India’s tourism sector is growing, bringing with it an increased demand for hotels that cater to holidaymakers. And hotel groups are seizing the opportunity

August 05, 2018

India’s tourism sector is growing, bringing with it an increased demand for hotels that cater to holidaymakers. And hotel groups are seizing the opportunity, expanding across some of the country’s biggest cities.

Last year was the most active year for hotel openings in India, and over half of the new supply came in the mid-market segment. In the country’s biggest 10 cities, the number of rooms reached over 28,800 in 2017, up from around 22,000 in 2013.

Big brands that have expanded include Country Inn & Suites, Royal Orchid, Sarovar Portico, Welcome Heritage, and Lemon Tree Hotels.

The influx has been supported by a boost in tourism numbers, especially from abroad. The number of foreign tourists is expected to grow to 20 million by 2020, doubling from around 10 million in 2017.

“Strong tourist movement has resulted in demand for quality hospitality at reasonable rates. This has added to the mid-scale property boom,” says Mandeep Lamba, Managing Director – Hotels and Hospitality, JLL India.

Tourism has become big business in countries around the world, and has surged in recent years following a dip during the global financial crisis. Hotel operators have responded. Golden Tulip, Mercure Hotel, Keys Hotel, Regenta Inn and Fortune Park are among other brands that have been adding to the supply of rooms in India.

The expansion is not without concerns. While hotel occupancy has risen over the past few years, it’s been at a slow pace. Occupancy levels sat at 69 percent in 2017.

Reforms such as demonetization in late 2016, GST implementation in 2017, and a recent Supreme Court ruling that banned the sale of liquor in all commercial establishments located on national and state highways, collectively impacted the performance of the hospitality sector.

“In addition to this, the ongoing systemic problems stemming from dated laws, myriad of approvals and licenses needed for the sector, high cost of capital, and high duties levied continue to remain overarching concerns this year,” says Lamba.

But for now, the growth trend should continue. The Revenue per Available Room (RevPAr), a measure of trading performance, across the country’s top 10 markets has however, remained stable over the past few years.

Strong tourist movement, both overseas and domestic, will continue to push global brands to further expand. And mid-market hotels brands will remain dominant in this landscape throughout the year,” says Lamba.

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