HVS India – Indian hospitality sector – Riding the next growth cycle
Despite several headwinds such as inflationary pressure, the possibility of a recession in the United States and Europe and a labor shortage, the performance outlook for the Indian hospitality industry remains positive. Read on to find out more.
After months of low occupancy and falling average rates due to the pandemic, India’s hospitality industry is finally seeing renewed growth. The upward cycle is clearly underway and is expected to last for the next 4-5 years as demand is soaring while supply growth is relatively weak, which is a significant difference from previous upward cycles in the world. ‘industry. This bodes well for the industry because, as the chart below shows, hotel performance in India is highly sensitive to supply and demand dynamics.
The golden age of the industry was from the calendar year 2000 to 2005. After the attacks of September 11, 2001, the industry began to experience unprecedented increases in occupancy and average rates, unlike to anything that had ever happened before. Domestic travel within the country began to increase as overseas travel was disrupted by the SARS outbreak in 2002 and the start of the US-Iraq War in 2003. As a result, demand increased to a CAGR of more than 11% during this period, while supply increased at a slower pace of 6.3%, which helped push occupancy up nearly 15 percentage points and RevPAR by almost 13%.
Indian Hotel Industry: RevPAR Supply, Demand and Trend
Source: HVS Research
The period 2005-2010 was mixed for the industry. Strong economic growth in India began to fuel hotel demand, which grew by double digits in the first three years of this period, helping average rates to peak in 2007. The strong growth in demand and the performance of the industry have prompted hoteliers across the country to set up new properties. However, the Great Financial Crisis of 2008 paved the way for the decline of the sector, which combined with the terrorist attacks in Mumbai that year led to a slowdown in demand growth until 2009. This, combined with the Oversupply growth, which has been largely concentrated in the country’s major hotel markets, has begun to weigh on occupancy rates and average hotel prices. As a result, while demand grew by more than 9% between 2005 and 2010, supply growth was well over 13%, resulting in a drop in RevPAR of almost 5% during this period. This trend persisted throughout the 2010-2015 period.
Industry performance reached a turning point in 2015 when demand peaked at nearly 10% and the rate of supply growth began to slow after years of rapid growth, resulting in an increase of 6 % of RevPAR. Starting in 2015, the industry experienced continuous RevPAR growth with a CAGR of 7.4%, however, the COVID-19 pandemic abruptly ended this bullish cycle in March 2020. Since then, the industry has come a long way, with demand and performance steadily improving over the years. last year, implying that the next growth cycle is underway. Despite a myriad of headwinds such as inflationary pressures, the possibility of a recession in the United States and Europe, and a labor shortage at stake, the outlook for industry performance remains positive because, unlike in previous cycles, the growth in supply will be less than the growth in demand.
According to the most recent industry data, while room demand increased by more than 60% year-over-year between January and July 2022, room supply only increased by 1-2%. While demand will continue to grow in double digits due to the strength of the domestic travel segment and a rebound in inbound tourism, we expect supply to increase at a CAGR of just 3-4% over the next six to next seven years. Additionally, with the growth of domestic leisure travel, future supply will be spread across multiple locations rather than concentrated in a few select key markets, preventing a slowdown in performance. These factors, combined with India’s strong economic outlook, will drive continued strong growth in the performance of the Indian hospitality industry.
Mandeep S.Lamba, President – South Asia, oversees the HVS practice in South Asia. Mandeep has spent over 30 years in the hospitality industry having worked with international hotel companies such as Choice Hotels, IHG and Radisson Hotels before becoming President of ITC Fortune Hotels in 2001. After successfully building the Fortune brand in medium-sized hotel sector in India, Mandeep ventured on an entrepreneurial journey for over 8 years, establishing JV companies with Dawnay Day Group UK and Onyx Hospitality Thailand before joining JLL in 2014, as Managing Director, Hotels & Hospitality Group – South Asia. A recognized industry leader, Mandeep has won several awards and accolades for his accomplishments. Recently, it was featured in the Hotelier India Power List of India’s Most Respected Hoteliers for the second consecutive year. Contact Mandeep at +91 981 1306 161 or [email protected]
Dipti Mohan, Senior Manager – Research with HVS South Asia, is a seasoned knowledge professional with extensive experience in creating research-based content. She is the author of several “point of view” papers such as thought leadership reports, expert opinion pieces, white papers and research reports. Contact Dipti at [email protected]