The Indian hospitality sector is witnessing a significant shift as investment momentum moves from traditional metro hubs like Delhi, Mumbai, and Bengaluru to smaller tier-II, III, and IV cities. This diversification is fueled by the increasing urban population, government initiatives, and the growing appeal of niche tourism, according to the HVS Anarock HOPE 2025 report.
The report highlights a record-breaking year for hotel signings in 2024, with over 47,500 rooms across 486 properties signed—an unprecedented milestone. Interestingly, 74% of these new projects were concentrated in smaller cities, up from 65% in 2019. The shift underscores a growing trend in the hospitality industry to tap into untapped and high-potential markets.
With increasing disposable incomes and the rise of domestic travel, these smaller cities are becoming focal points for both leisure and business travel. Hotel operators and investors are keen to capitalize on the demand in emerging urban areas, where room availability and tourism infrastructure have long been limited.
Despite the rapid expansion, overall occupancy rates in 2024 hovered between 63-65%, marking a 1-3% growth compared to 2023 but still slightly below pre-pandemic levels. As these smaller cities integrate into the broader hospitality ecosystem, occupancy rates are expected to improve further.
The expansion has been bolstered by government initiatives such as the development of regional connectivity through the UDAN scheme and a focus on promoting tourism in tier-II and III cities. Additionally, state governments are providing incentives to encourage hotel development, which has played a vital role in attracting major hospitality players to these regions.
The report signals immense opportunities for hotel operators to diversify their portfolios and target the underpenetrated markets of smaller cities. Brands are leveraging cost-efficient greenfield and brownfield developments to ensure their offerings align with the needs of these regions, including midscale, budget, and boutique accommodations.
For the hospitality sector, this is not just an expansion but a recalibration of strategy. With smaller cities poised to contribute significantly to the industry’s growth, hoteliers must innovate and adapt to cater to the evolving expectations of these new-age travelers while ensuring sustainable practices.
As the hospitality boom moves beyond tier-I markets, the spotlight is firmly on smaller cities to lead the next wave of industry growth in India.
Source:Mint
