India’s hotel expansion is gathering pace, but the next wave will not be led by luxury towers reshaping metro skylines. The largest growth will be in the midscale hotel category, in a wider set of cities, even as construction costs climb.
According to a new report by hospitality consultancy HVS Anarock and Gleeds Consulting, about 60,220 keys were signed in 2025, the strongest calendar year of hotel signings. The figure stood at 47,249 keys in 2024.
Signed hotels refer to projects where developers and operators have formalised management or franchise agreements.
The report ‘2025 Hotel Development Cost in India’, launched at the HVS Anarock HOPE 2026 conference currently underway in Goa, said India had around 209,200 branded hotel rooms across nearly 2,300 properties as of the first half of 2025.
The inventory, including pipeline rooms, is projected to reach 350,400 rooms by 2030. The composition of that pipeline, though, is telling.
Midscale hotels account for 37% of the existing branded hotel room supply but 39% of the upcoming pipeline, suggesting that a large proportion of future supply is tilting further toward the segment.
The economy segment, by contrast, is shrinking from 6% of current inventory to just 3% of pipeline share. Interestingly, luxury and upper-upscale each account for roughly 17% to 18% of both existing stock and upcoming supply.
Midscale properties—positioned between economy and upscale—offer comfortable rooms and basic amenities at moderate rates.
The format aligns with India’s demand profile, which remains overwhelmingly domestic: business travel, regional corporate activity, leisure trips, pilgrimages, weddings and meetings.
“India’s expanding middle-income base is widening the branded hotel opportunity beyond traditional premium travellers,” said Akash Datta, managing director (South Asia) at HVS Anarock. “As travel becomes more frequent and aspirational, growth is shifting from luxury and upper-upscale toward midscale, a segment that enables more efficient capital deployment while addressing broad domestic demand."
Yet growth alone does not ensure returns. "Our report reinforces that capital deployment remains the single largest risk variable in hotel development. This is particularly true in midscale hotels, where pricing elasticity is limited, and margins are tight.”
Hotel performance
Between 2017 and 2025, hotels raised average room rates by about 5% annually and improved revenue per available room at a similar pace, suggesting that pricing power has returned and demand has been strong enough to support steady rate increases despite the pandemic disruption.
National occupancy, or the number of rooms occupied across hotels in India, has also stabilised in the low-60% range.
For developers, midscale hotels offer a broader acceptance rate and lower capital intensity than upscale or luxury projects.
“India’s branded room penetration remains low, particularly in the mid-scale and upper mid-scale segments, and that’s really our sweet spot,” said Ron Pohl, president of international operations and President of WorldHotels at BWH Hotels, adding that demand in these categories continues to outpace new hotel room supply.
Beyond metros
The geography of growth is also widening. While established markets such as Delhi, Mumbai, Bengaluru, Hyderabad, Chennai and Kolkata remain active, fresh supply is seen in tier-2 cities such as Pune, Ahmedabad, Jaipur, Kochi and Lucknow, and tier-3 markets including Indore, Bhubaneswar, Coimbatore, Nagpur and Surat.
Tier-1 markets have become harder to underwrite. Metropolitan land values have risen faster than achievable room rate growth. Within cities, central business districts and dense cores can command a 10-20% premium over base benchmarks because of excavation depth, basement requirements and site constraints. Peripheral corridors may come in 5-10% lower.
For developers, midscale hotels in tier-2 and tier-3 markets offer a more workable equation—lower land costs, improved infrastructure and faster stabilisation. The result is a pipeline that is broad-based but calibrated. Supply is rising, but so are construction costs.
What it costs to build a room
Development costs in 2025 have risen 8-12% year-on-year, driven by material inflation, skilled labour shortages, higher mechanical and electrical specifications and longer approval timelines.
Across segments, construction costs typically range between ₹9,000 and ₹14,000 per sq ft of built-up area, including taxes. Urban and leisure hotels can range between ₹12,000 and ₹15,750 per sq ft. In tier-1 cities, costs are often 12-15% higher than benchmarks because of vertical construction, multi-level basements and regulatory complexity.
The per-key costs underline the gap between segments:
- Economy hotels (2-3 stars) typically cost ₹45-52 lakh per room to develop
- Midscale projects (4-star and above) range from ₹48-69 lakh per room.
- Upscale hotels (5 stars) cost between ₹1.13 crore and ₹1.82 crore per room
- Luxury developments cost ₹1.93- ₹3.71 crore per key, excluding land and statutory charges.
The rise is not linear. Economy hotels operate at roughly 350-500 sq. ft per key. Midscale projects average 600-750 sq. ft Upscale ranges from 800-950 sq. ft, while luxury can exceed 1,300 sq. ft per key and cross 2,000 sq ft in leisure hotels and resorts.
When a midscale key can cost up to ₹69 lakh to build and an upper-midscale room crosses ₹1 crore, pricing discipline becomes central to project viability. The mid-market may be India’s next hotel boom, but it will be one shaped as much by cost control as by demand.
- Midscale hotels are set to capture a larger share of India’s future supply, rising from 37% of existing branded rooms to 39% of the development pipeline.
- Hotel fundamentals have strengthened, with average room rates and RevPAR growing roughly 5% annually since 2017 and occupancies stabilising in the low-60% range.
- Expansion is spreading beyond metros into tier-2 and tier-3 cities, where lower land costs and improving infrastructure offer developers a more viable growth equation.
- Construction costs have risen 8–12% year-on-year, pushing midscale development costs up to ₹69 lakh per key.