In 2010, India’s branded hotel sector comprised approximately 65,000 rooms. By December 2023, this number surged to around 207,000 keys, marking a threefold increase. This growth reflects a significant expansion of hotel inventory in India’s key business cities, paralleling the robust demand from corporate travellers spurred by a decade of exceptional performance in the office market sector.
Over the past decade, the penetration of branded hotels in India has seen a steady climb, culminating in a significant leap over the last two years. By December 2022, the market’s brand penetration was 48%, trailing behind developed markets like Japan and China, yet aligning with Australia. By December 2023, it reached a peak of 52%, the highest in a decade, with a notable 27% year-on-year growth in new openings by key count.
The year 2023 was pivotal for India’s hotel industry, overcoming delays caused by the COVID-19 pandemic through renewed financing and development efforts. The positive momentum is expected to continue into 2024, with a focus on completing existing projects.
Caption: Hotel Signing & Openings Tier Wise (2022 vs 2023)
Source: JLL
The luxury segment in India has been strengthening, introducing various high-end and premium hotel brands nationwide. As of 2023, luxury and upper upscale hotels represented 29% of new branded hotel agreements and 14% of the openings, in terms of key count.
While Tier I cities have traditionally been the focus of growth and investment, Tier II and III cities are gaining prominence due to enhanced connectivity, favorable business policies, and the development of industrial and commercial sectors. In 2023, Tier I cities reported 36 hotel signings (over 4,300 keys) and 24 openings (around 2,300 keys). In contrast, Tier II and III cities witnessed 232 signings (over 20,800 keys) and 164 openings (approximately 10,300 keys).
The trend of large hotels, typically featuring over 250 keys and extensive banqueting facilities, has been expanding beyond major metros into popular leisure destinations like Jaipur and Goa, driven by the rising demand for social and corporate events.
In terms of hotel management in 2023, 79% of the new hotels opted for management contracts, 14% for franchise agreements, 3% for a combination of franchise and management (manchises), and 4% for leases and revenue share agreements. The recent increase in lease agreements, particularly in Tier I cities like Ahmedabad, underscores the growing confidence in this operational model among hotel owners and brands.
The landscape of consumer behavior and preferences in the hotel industry has undergone significant transformation over recent years. This shift is particularly evident in the changing perception of branded hotels, which have transitioned from being viewed primarily as a luxury option to being considered an essential choice for many travelers. This evolution in consumer preferences can be attributed to several key factors, including heightened expectations for safety, security, hygiene, and quality of service, as well as broader trends in brand awareness and the pursuit of premium experiences.
Safety, Security, Hygiene, and Quality Service
In today’s travel environment, concerns over safety and hygiene have taken precedence for many travelers, a trend that has been accelerated by global health crises such as the COVID-19 pandemic. Branded hotels have been able to leverage their reputations for maintaining high standards in these areas, providing a sense of trust and reliability for guests. These hotels typically adhere to stringent safety protocols and hygiene standards, often publicizing their efforts to ensure guest well-being. As a result, travelers increasingly perceive staying at branded properties as a way to mitigate risks associated with travel, turning what was once a luxury consideration into a necessary precaution.
Increased Brand Awareness
The rise in brand awareness among hotel guests is another significant factor driving the shift in consumer preferences. This is not limited to the luxury segment; even travelers who previously opted for budget or mid-segment accommodations are now more likely to recognize and choose branded hotels. This heightened awareness can be partly attributed to effective marketing strategies by hotel brands, as well as the role of social media and online reviews in shaping perceptions of hotel quality and reliability. As travelers become more informed, their preferences shift towards brands that consistently deliver expected standards of service and amenities.
Infrastructure and Accessibility
The expansion of branded hotels into smaller cities and towns, including Tier II and III markets, has also played a crucial role in changing consumer preferences. Improved infrastructure and increased accessibility have facilitated this spread, allowing hotel brands to tap into new markets and cater to a broader audience. This geographical diversification has not only made branded hotels more accessible to travelers across different regions but has also enhanced brand recall by ensuring that these names are familiar to a wider demographic, thereby influencing lodging choices even in less urbanized areas.
Trend Towards Premiumization
A notable trend towards premiumization, fueled by rising disposable incomes and changing lifestyle aspirations, has further influenced the shift in consumer preferences. As people’s economic conditions improve and they become more aspirational in their travel choices, there is a clear movement towards seeking higher-quality accommodations. This trend is reflected in travelers’ willingness to upgrade from non-branded or budget accommodations to branded hotels, and from mid-segment to premium and luxury offerings. The desire for enhanced experiences, characterized by superior service, amenities, and exclusivity, is driving this shift towards premiumization in the hospitality sector.