The Indian hospitality market is experiencing significant growth driven by domestic travel demand, making it less vulnerable to global disruptions compared to pre-Covid times, as per a report. Industry revenues are expected to rise in FY26, supported by various segments like leisure travel, events, weddings, and business travel. Premium hotel occupancy rates across India are projected to remain steady at 72-74% in FY26, with room rates expected to increase to Rs 8,200-8,500.
Despite a decline in foreign tourist arrivals, the overall demand remains robust, with a diversified set of drivers fueling the sector’s expansion. The upcoming Union Budget is anticipated to focus on boosting tourism, infrastructure investments, and improving ease of doing business. Favorable policy frameworks are likely to facilitate inventory addition and sustain the growth of the hotel industry in India.
The market dynamics indicate that demand growth outpaces supply, enhancing pricing power and driving revenue per available room to new highs. This trend has bolstered sector profitability and encouraged measured capacity expansion across different markets. The sector is witnessing a shift towards diverse formats and pricing strategies, prompting hotel companies to explore beyond traditional upscale business hotels.
According to Sruthi Thomas, Vice President & Sector Head, Corporate Ratings at ICRA Limited, there is a rising inclination towards asset-light operating models like management contracts and franchise setups. These models generate fee-based income, require minimal capital investment, and enhance returns on capital employed and free cash flows. The premium hotel segment is expected to see sustained revenue growth in the latter half of FY2026 and FY2027, with room occupancy rates estimated at 69-71% and average room rates at Rs. 8,100-8,200 in the first nine months of FY26.
