India hospitality sector growth enters ‘Golden Cycle’ on luxury gap

New Delhi, April 2026: India’s hospitality sector is entering a “golden cycle” driven by sustained average daily rate (ADR) growth, a widening demand-supply gap in the luxury segment, and mid-teen internal rates of return (IRRs), according to a latest report by Nomura Asian Equity Research.

The brokerage highlighted that the sector’s investment outlook is strengthening, supported by improving pricing power, resilient demand across segments, and relatively moderate supply growth. The report noted that the current cycle presents an attractive risk-reward profile for investors, particularly in premium and upscale hotel categories.

Luxury demand outpaces limited supply growth

Nomura expects ADR growth to continue over the medium term, largely due to constrained supply in key urban markets and high-end hotel segments. Data cited from Hotelivate indicates that hotel supply in major business cities and the luxury category is projected to grow at only 6–7 percent annually, reflecting high barriers to entry such as land costs, regulatory complexity, and capital intensity.

In contrast, demand is forecast to expand at a significantly faster pace, ranging from high-single to low-double-digit growth. This demand is being driven by rising discretionary spending among affluent Indian travellers and high-net-worth individuals, along with sustained corporate travel demand, particularly in GCC-focused cities such as Hyderabad, Bengaluru, and Pune.

Foreign tourist inflows and strong domestic travel activity are also contributing to the demand surge. Additionally, the depreciation of the Indian rupee is acting as a tailwind, making Indian hotel stays more cost-competitive for international travellers and supporting higher ADRs.

Demand-supply gaps persist across major cities

The report points to structural under-penetration in India’s hotel sector compared to other Asia-Pacific markets. Nomura’s analysis, based on metrics such as population, air traffic, and Grade A office stock, reveals significant gaps in hotel room supply across major metros including Delhi NCR, Mumbai, and Bengaluru.

This imbalance is expected to sustain upward pressure on room rates, particularly in premium and luxury categories where new supply remains limited. The relatively slow pace of hotel development, combined with rising travel demand, is creating favourable operating conditions for existing assets.

Despite lower commercial office rentals in India compared to other Asian cities, hotel ADRs show a much narrower gap globally. This dynamic is translating into stronger yield potential for hospitality assets, enhancing their attractiveness relative to commercial real estate investments.

Returns vary across segments and operating models

The report highlights a divergence in returns across different hotel segments. Luxury hotels continue to maximise earnings per room due to higher pricing power, while budget hotels benefit from lower capital requirements and strong operating margins, delivering higher returns on capital employed.

Upscale hotels, meanwhile, offer a balanced risk-return profile, combining moderate capital intensity with steady demand. Overall, Nomura estimates that IRRs in the Indian hospitality sector remain in the mid-teen range, supported by operating leverage and favourable demand-supply dynamics.

Even under less favourable market conditions, IRRs are expected to remain in the low-teens, indicating relatively strong downside protection compared to previous cycles.

Valuations stabilise after recent expansion

Sector valuations have seen notable changes over recent years. According to Nomura, hospitality sector valuations expanded from 16x EV/EBITDA in FY22 to 23x in FY25, reflecting strong investor sentiment during the recovery phase. However, valuations have since moderated to around 18x for FY27 estimates and 15x for FY28.

These levels are comparable to valuation benchmarks observed during the FY11–14 period, which was considered a downcycle for the industry. The current moderation is viewed as a stabilisation phase rather than a decline in fundamentals.

Consensus estimates suggest an EBITDA compound annual growth rate (CAGR) of approximately 15 percent over FY26–28. Additionally, most hospitality companies are maintaining relatively healthy balance sheets, with low debt levels or net cash positions, marking a significant shift from the highly leveraged structures seen in earlier cycles.

Structural drivers support long-term growth

Nomura attributes the sector’s momentum to several structural factors, including rapid urbanisation, expansion of business travel, and continued growth in inbound tourism. The persistent shortage of high-quality hotel rooms, particularly in the luxury segment, is expected to sustain pricing power over the long term.

The report also notes that macroeconomic factors such as currency depreciation could further strengthen India’s position as a cost-effective destination for international travellers, reinforcing ADR growth.

With demand consistently outpacing supply and operating metrics improving across segments, India’s hospitality industry is positioned for a sustained growth phase, supported by favourable market fundamentals and increasing investor interest.