Hospitality Sector Expected To Grow 6-8% In FY2026

New Delhi, Jun 10 (KNN) The Indian hospitality industry is anticipated to achieve revenue growth of 6-8 percent in the fiscal year 2026, according to a recent report published by the Investment Information and Credit Rating Agency (ICRA).

This projection represents a moderation from the sector's recent performance trajectory.

ICRA has adjusted its outlook for the hospitality sector from 'Positive' to 'Stable', marking a shift following three consecutive years of double-digit revenue expansion that the industry experienced from FY2023 through FY2025.

The rating agency's revised assessment reflects expectations of normalized growth patterns ahead.

Premium hotel occupancy rates across India are forecast to maintain strength at 72-74 percent during FY2026, representing a marginal improvement from the 70-72 percent levels recorded in both FY2024 and FY2025. This sustained occupancy performance indicates continued demand resilience in the sector.

Average room rates for premium hotels are projected to reach Rs 8,200-8,500 in FY2026, building upon the healthy rates of Rs 8,000-8,200 achieved in FY2025. The upward trajectory in room rates is attributed to constrained supply additions and ongoing renovation, refurbishment, and upgradation initiatives being undertaken across multiple hotel properties.

Jitin Makkar, Senior Vice President and Group Head - Corporate Rating, ICRA Limited, explained that the growth moderation follows a period of robust performance.

"After three years of strong demand, driven by favourable domestic leisure travel, demand from meetings, incentives, conferences and exhibitions (MICE), including weddings, and business travel, the growth in the Indian hospitality sector is forecast to normalise at 6-8% YoY in FY2026," Makkar stated.

The sector faces mixed prospects regarding tourist arrivals. Foreign tourist arrivals are expected to remain subdued in the immediate term due to recent security incidents, though a gradual recovery is anticipated.

Domestic tourism, which has served as the primary demand driver, is projected to continue its leadership role in sustaining sector growth.

Several structural factors are expected to support continued expansion in the hospitality sector.

These include ongoing improvements in infrastructure and air connectivity, favourable demographic trends, and the anticipated increase in large-scale MICE events facilitated by the opening of new convention centres across the country.

Supply dynamics favour continued pricing power for hotel operators. Supply growth is expected to lag behind demand for the next 12-18 months, according to ICRA's analysis.

The agency's premium room inventory database covering 12 key cities indicates a compound annual growth rate of 4.5-5.0 percent in room inventory additions from FY2023 through FY2026.

The composition of new supply additions is evolving, with a significant portion now coming through management contracts and operating leases rather than traditional ownership models.

Challenges in securing land in premium micro-markets within metropolitan areas and larger cities are constraining supply expansion.

Consequently, new premium hotel supply is increasingly derived from rebranding initiatives, property upgradation projects, and greenfield developments in suburban locations.

(KNN Bureau)