Home / Industry / Infrastructure /  Hotel room demand in India outstripping supply: HVS report
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NEW DELHI: After months of low occupancy and falling average rates due to the pandemic, the Indian hotel industry is witnessing renewed growth and the demand is outpacing supply growth is relatively low, found a new report by hospitality consultancy HVS.

Mandeep S. Lamba, president, South Asia and Dipti Mohan, associate vice president, research with HVS South Asia, in their report said this augurs well for the industry because hotel performance in India is highly sensitive to supply and demand dynamics.

According to the most recent industry data the company obtained, while room demand increased by more than 60% year on year between January-July 2022, room supply increased by only 1-2%.

While demand will continue to grow by double digits due to the strong domestic travel segment and a rebound in inbound tourism, the company said it anticipates supply to grow at a CAGR of only 3-4% over the next six to seven years.

“Additionally, because of the growth of domestic leisure travel, the upcoming supply will be spread out across several locations rather than concentrated in a select few key markets, preventing a performance slowdown. These factors, combined with India’s strong economic outlook, will drive continued strong performance growth in the Indian hotel industry," said Lamba.

Beginning 2015, the industry witnessed continuous growth in revenue per available room or RevPAR (a metric hoteliers use to measure how much money a hotel room makes them) with a CAGR of 7.4%, however, the covid-19 pandemic abruptly ended this upcycle in March 2020.

But for the last year or so it has seen an increase in demand and the sector’s performance has consistently improved, which could help the next growth cycle in the industry come, they added.

“Despite a myriad of headwinds such as inflationary pressure, the possibility of a recession in the US and Europe, and a manpower shortage at play, the industry’s performance outlook remains positive because, unlike previous cycles, supply growth will be lower than demand growth." said Lamba.

The advisory added that the deal activity in the global travel and tourism industry has been improving, with 573 deals (including mergers and acquisitions, private equity, and venture financing) being announced during the first half of 2022, up 3.1% over the same period in 2021. However, it said deal activity in India continues to be lackluster, as the industry has also not yet witnessed a flurry of distressed transactions in the fallout of covid.

Nonetheless, it said it is evaluating several hotel assets for sale in the market and currently has over a dozen buy-side, sell-side, and capital restructuring mandates.

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