India hotel investments hit $567M in 2025; Tier II, III drive growth

New Delhi, May 2026: Money is no longer sitting on the sidelines in Indian hospitality; it’s chasing operating hotels, locking into Tier II cities, and pushing deal volumes to levels the industry hasn’t seen in years.

India’s hospitality sector recorded approximately USD 567 million in hotel investments across 28 transactions in 2025, marking a 67% jump over USD 340 million in 2024. The spike came on the back of aggressive investor participation and rising deal flow in Tier II and Tier III cities, which made up 40% of total transactions. And the development story is moving just as fast.

The year saw 51,647 keys signed across 424 hotels. A striking 71% of those deals landed in emerging cities, underlining a clear pivot away from metro-heavy growth.

Investment growth driven by diversified capital sources

Capital in 2025 came from everywhere, and that’s the real story. Institutional investors and private equity firms led with 35% of transaction volumes. High net-worth individuals and private owners followed at 27%. Listed hotel companies took 25%, while real estate developers and owner-operators chipped in 8% and 5%. That spread matters. It shows this isn’t a one-cycle rally, it’s broad conviction. According to industry sources, the market is getting deeper, with more domestic money stepping in and investors taking a sharper, more structured approach to deploying capital.

Tier II and III cities emerge as core growth markets

The gravity shift is now undeniable. Emerging cities kept their momentum, pulling in both premium and midscale developments. Think luxury resorts in Rishikesh, upper-upscale hotels in Goa, and steady builds in Ludhiana, Nashik, Vadodara, Udaipur, and Lonavala. What’s driving it? Better roads, better air links, and a surge in domestic travel. And scale is following. In 2025, 29 hotels with over 250 keys were signed up from 21 in 2024. While metros like Mumbai, Bengaluru, and Delhi still dominate large-format deals, that model is now pushing into Guwahati, Visakhapatnam, Indore, and Pushkar.

Operational assets dominate transaction activity

Investors are playing it safe, but smart. Operational hotels made up 69% of total transaction volume. These are income-generating assets with proven performance. Under-construction and non-operational properties accounted for 18%, while land and lease deals stood at 13%. Luxury hotels led the pack with a 42% share, followed closely by upscale assets at 41%. Upper-upscale, midscale, and economy segments trailed at 9%, 6%, and 2%. But here’s the catch. There aren’t enough good assets available. Owners are holding on to high-performing hotels, tightening supply and pushing valuations up.

Branded expansion and asset-light models gain traction

Operators are scaling, but without owning the bricks. Branded hotel signings jumped 23% year-on-year to 51,647 keys. Management contracts dominated, rising from 81% in 2024 to 84% in 2025. Franchise deals held 14%. Lease and revenue-share agreements? Down to just 2%. That’s a clear shift toward asset-light growth, faster expansion, lower capital risk. Greenfield development stayed strong too, with about 33,170 keys added in 2025, up 17% year-on-year. Developers are still betting big, even with global uncertainty in the background.

Momentum continues into 2026 with rising transaction volumes

The pace hasn’t slowed in 2026, it’s picked up. Hotel transaction volumes hit roughly USD 185 million in Q1 2026, a 58% rise from USD 117 million in the same period last year. Big-ticket deals are already shaping the year. One key move saw a 41% stake acquisition in a hotel subsidiary, backed by a USD 107 million investment commitment aimed at scaling the portfolio. And the deal mix is evolving.

Operating hotel acquisitions, land monetisation, and platform-level consolidation are all in play, showing a more mature, layered investment strategy. Policy support, infrastructure upgrades, and relentless domestic travel demand are keeping the engine running. But the real takeaway is simpler: Capital isn’t testing the waters anymore, it’s committing for the long haul.