Premium hotels across India are expected to maintain healthy occupancy levels of 72–74 per cent in FY26, reflecting sustained demand across key markets
India’s hospitality sector is entering a phase of sustained structural growth, powered largely by robust domestic travel demand that is reshaping the industry’s resilience and long-term prospects. According to a latest report by ratings agency ICRA, this domestic-led momentum has made the sector far less vulnerable to global shocks than it was in the pre-Covid-19 era, even as international tourist arrivals remain subdued.
The report notes that industry revenues are expected to continue growing in FY26 despite a strong base in FY25. This growth is being driven by a diversified demand mix that includes leisure travel, meetings, incentives, conferences and events (MICE), destination weddings, and a steady recovery in business travel. Together, these segments have broadened the sector’s demand base, ensuring that growth is no longer dependent on a single travel driver.
Premium hotels across India are expected to maintain healthy occupancy levels of 72–74 per cent in FY26, reflecting sustained demand across key markets. Average room rates (ARRs) for premium properties are projected to rise further to Rs 8,200–8,500 in FY26, compared with Rs 8,000–8,200 in FY25. This steady increase underscores the sector’s growing pricing power, supported by a persistent demand-supply imbalance.
ICRA pointed out that even though foreign tourist arrivals have not fully normalised, the overall demand environment remains largely unaffected. Domestic travel has emerged as the backbone of the industry’s recovery and expansion, cushioning hotels from external volatility. This shift marks a structural change in the Indian hospitality market, where domestic travellers are now driving both volumes and revenues.
The report also expects the upcoming Union Budget to continue prioritising tourism and infrastructure development, along with measures to improve connectivity, accessibility and ease of doing business. Such policy support is seen as crucial in sustaining the sector’s expansion, particularly as supply growth continues to lag demand.
With new hotel additions trailing demand growth, the imbalance has pushed revenue per available room (RevPAR) to record highs. This has significantly strengthened profitability across the sector and created room for calibrated capacity addition in both metro and non-metro markets. Favourable financing frameworks and supportive policies are expected to encourage inventory expansion without disrupting market equilibrium.
“The market can support multiple formats and price points, pushing hotel companies to diversify beyond the traditional upscale business hotel,” said Sruthi Thomas, Vice President and Sector Head, Corporate Ratings at ICRA. She highlighted that hotels are increasingly exploring varied offerings, including lifestyle, boutique and mid-scale formats, to tap into evolving traveller preferences.
Another notable shift highlighted in the report is the growing preference for asset-light operating models. Hotel companies are increasingly opting for management contracts and franchise models, which allow them to expand rapidly with minimal capital investment. These models generate fee-based, high-margin income and improve return on capital employed as well as free cash flows, making them attractive in a capital-intensive industry.
Looking ahead, ICRA expects sustained demand and pricing power to support revenue growth in the premium hotel segment through the second half of FY26 and into FY27. For the first nine months of FY26, room occupancy is estimated at 69–71 per cent, with average room rates projected at Rs 8,100–8,200, indicating continued stability even outside peak periods.
Overall, the report paints a picture of an industry that has emerged stronger and more balanced after the pandemic. With domestic travel acting as a reliable growth engine, supportive government policies, and evolving business models, India’s hospitality sector appears well positioned for its next phase of expansion—one that is structurally sound and less susceptible to global uncertainties.
