India Hotel ADR Growth Signals ‘Golden Cycle’, Says Nomura

New Delhi, April 2026: India’s hospitality sector is entering a “golden cycle” marked by sustained average daily rate (ADR) growth, mid-teen internal rates of return (IRRs), and improving valuations, according to a latest report by Nomura, highlighting strong investor interest amid tightening supply and rising demand.

ADR Growth Driven by Luxury Demand-Supply Gap

The report states that ADR growth in India’s hotel sector is expected to continue over the medium term, primarily supported by a widening gap between demand and supply in the luxury segment. While demand continues to expand across multiple traveller segments, new supply—particularly in business cities and luxury hotels—is projected to grow at a relatively modest pace of 6 to 7 percent annually.

This limited expansion is attributed to structural barriers to entry, including high development costs, regulatory constraints, and long project timelines. As a result, existing properties are benefiting from stronger pricing power, especially in premium and luxury categories.

Demand Growth Outpacing Supply Across Segments

Demand for hotel stays in India is expected to grow at a high-single to low-double-digit pace, significantly outpacing supply additions. The report attributes this growth to multiple drivers, including increased spending by affluent domestic travellers and high-net-worth individuals, rising corporate travel, and sustained momentum in both domestic and international tourism.

Key business travel hubs such as Hyderabad, Bengaluru, and Pune are seeing strong demand linked to corporate activity, particularly from sectors connected to global markets. At the same time, leisure travel continues to expand, supported by changing consumer preferences and increased disposable income.

The depreciation of the Indian rupee has also contributed to ADR growth by making India a more cost-effective destination for international visitors, further strengthening inbound travel demand.

Underpenetration Supports Long-Term Growth Potential

Nomura’s analysis highlights that India’s hotel market remains underpenetrated compared to other Asia-Pacific regions. Using metrics such as population, air traffic, and Grade A office stock, the report identifies persistent demand-supply gaps even in major metropolitan areas including Delhi NCR, Mumbai, and Bengaluru.

This structural gap underscores the long-term growth potential of the sector, as demand continues to build faster than the pace of new hotel development. Despite relatively lower commercial office rents in India compared to other Asian cities, the gap in hotel ADRs is narrower, resulting in stronger yields for hotel assets.

This dynamic is enhancing the attractiveness of hospitality investments relative to other real estate asset classes, particularly commercial office spaces.

Returns and Valuations Reflect Strong Fundamentals

The report estimates that internal rates of return for hotel investments in India are currently in the mid-teen range, supported by operating leverage, favourable demand-supply dynamics, and sustained pricing power. Even under conservative scenarios, IRRs are expected to remain in the low teens, indicating a degree of downside protection for investors.

Valuation trends also reflect stabilising market conditions. Sector valuations increased from 16 times enterprise value to EBITDA (EV/EBITDA) in fiscal year 2022 to 23 times in fiscal year 2025, before moderating to 18 times for fiscal year 2027 estimates and 15 times for fiscal year 2028. These levels are comparable to historical periods of lower market performance, suggesting room for future upside.

Consensus estimates indicate EBITDA compound annual growth of approximately 15 percent between fiscal years 2026 and 2028. Additionally, most hospitality companies are operating with improved balance sheets, maintaining either net debt or net cash positions, a marked shift from earlier cycles characterised by high leverage.

Segment Dynamics and Investment Outlook

The report outlines varying return profiles across hotel segments. Luxury hotels continue to maximise earnings per room, benefiting from strong demand and pricing power. Budget hotels, on the other hand, offer higher returns on capital due to lower investment requirements and stronger operating margins.

Upscale hotels are positioned between these segments, offering a balanced risk-return profile for investors seeking stability alongside growth potential.

Nomura expects future growth to be led by luxury and corporate travel demand, with room shortages—particularly in premium categories—continuing to support ADR expansion. Urbanisation, rising business activity, and increased inbound tourism are expected to sustain this trend over the coming years.

The report also notes broader industry dynamics highlighted by separate research, indicating that while construction costs have stabilised, rising fit-out expenses and extended development timelines are reshaping project economics. These factors are further contributing to controlled supply growth, reinforcing favourable conditions for existing operators.

Overall, the sector’s current trajectory reflects a combination of strong demand fundamentals, disciplined supply expansion, and improving financial metrics, positioning India’s hospitality market for a sustained growth phase.