5 Reasons Why Indian Realty Developers Are Turning to Hospitality as Travel Demand Soars

Introduction

In recent years, Indian real estate developers have increasingly shifted their focus towards the hospitality sector, driven by the booming travel industry. As domestic travel recovers post-pandemic, there is a rising demand for quality hospitality infrastructure, particularly in tier-2 and tier-3 cities. This shift marks a significant change in strategy for developers, who are now recognizing the potential for high returns in the hospitality industry despite its capital-intensive nature.

1. Changing Cycles in Real Estate

Developers are witnessing a shift in market cycles that now favor investments in hospitality. Historically, hospitality was seen as a high-capex sector with slower returns, leading many developers to prioritize other areas. However, with changing consumer preferences and increasing discretionary spending on travel and experiences, developers are re-evaluating their strategies. The average room rates have shown significant improvement, and with discretionary spending on the rise, a portion of this is expected to be directed towards travel and hospitality.

2. Rising Demand in Tier-2 and Tier-3 Cities

The demand for quality hospitality infrastructure is not just limited to metropolitan areas but is also growing rapidly in tier-2 and tier-3 cities. According to data from JLL Hotels & Hospitality Group, the first half of 2024 saw the signing of 16,200 new keys in these cities, a substantial 59% increase compared to the 10,200 keys signed in the first half of 2023. Developers recognize the untapped potential in these markets, where rising consumer confidence is driving demand for unique and high-quality hospitality experiences.

3. Strategic Partnerships and New Projects

To capitalize on this growing demand, real estate developers are forming strategic partnerships with established hospitality brands and launching new projects. For instance, a prominent developer is converting a 48-acre land parcel in Bengaluru into a 294-key luxury resort, expected to be completed by 2026. Other developers are also exploring opportunities in key locations like Mumbai, Hyderabad, Delhi-NCR, and Goa, where integrating hotels with branded residences is gaining momentum.

4. Significant Investment Opportunities

The hospitality sector's promising growth has attracted increased investments from real estate companies. Industry experts note that developers are now more willing to invest in hospitality, recognizing the potential for high returns. The integration of hotels with branded residences is particularly appealing, as it offers developers a way to diversify their portfolios while catering to the rising demand for premium hospitality experiences.

5. Expansion of Branded Hospitality

Several real estate companies are partnering with global hospitality brands to bring new hotel experiences to India. For example, Trehan Iris is collaborating with Marriott International to launch the Courtyard by Marriott brand in Noida, marking the brand's debut in the region. Similarly, M3M India has partnered with Oyo to develop 1.5 million square feet of hospitality space, including India's largest SUNDAY Hotels. These collaborations highlight the growing trend of branded hospitality projects, which are expected to meet the rising demand for quality accommodations across the country.

Conclusion

As the travel industry in India continues to thrive, real estate developers are increasingly recognizing the value of investing in hospitality. The sector's growth potential, especially in tier-2 and tier-3 cities, coupled with changing market cycles and strategic partnerships, presents significant opportunities for developers looking to diversify their portfolios and capitalize on the booming travel demand.