Hospitality sector: ICRA projects 6% growth in revenue; outlook revised to 'stable'

After three years of double-digit growth, India’s hospitality sector is expected to settle into a steadier pace, with revenue projected to rise by 6-8% in FY2026, a report by the Investment Information and Credit Rating Agency (ICRA) said.

The agency has also revised its outlook for the sector from ‘Positive’ to ‘Stable.’Pan-India occupancy in premium hotels is likely to remain strong, increasing to 72-74% in FY2026 from 70-72% in the past two fiscal years. Average room rates (ARRs) are projected to climb to between Rs 8,200 and Rs 8,500, driven by limited new supply and ongoing renovations across the segment."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," said Jitin Makkar, senior vice president and group head of corporate ratings at ICRA, quoted by ANI.Foreign tourist arrivals are expected to stay muted in the near term due to recent terror incidents, however, the report also anticipated a gradual recovery in international travel as conditions improve.Domestic tourism, which has been the sector’s primary driver, continues to be the sector’s backbone, and is expected to lead over the near term.The report said that key factors driving this growth are infrastructure upgrades, enhanced air connectivity, and a rise in large-scale MICE events, boosted by the opening of new convention centres.

On the supply side, hotel room additions are expected to lag demand over the next 12-18 months. ICRA’s data across 12 major cities shows a modest compound annual growth rate of 4.5-5.0% in premium room inventory between FY2023 and FY2026. Much of this new supply is being added through management contracts and operating leases, rather than fresh developments.Limited land in major city centres is pushing new premium hotels to expand into the suburbs, with most growth now coming through rebranding, upgrades, and building new properties from scratch.