Tier-II and Tier-III cities like Ayodhya becoming the growth drivers of hospitality sector

India's tier II and III cities, such as Jaipur, Indore, Surat, and notably Ayodhya are emerging as the growth drivers for the hospitality sector in India.

According to a report by real estate and investment management company JLL, Ayodhya was among the key cities highlighted in the report, which noted significant activity in the branded hotel sector in Q1 2024.

The report highlights that in the Q1 of 24, the branded hotel openings included 36 hotels with 2,316 keys (rooms), out of which 75 per cent of the total number of keys were located in Tier II and III cities, such as Jaipur, Indore, Surat, and notably Ayodhya. During Q1, there were a total of 90 hotel signings comprising 9,710 rooms.

The Indian hospitality sector witnessed a growth of 11.4 per cent in RevPAR (Revenue Per available room) y-o-y in Q1 of 2024. The growth is driven by a significant rise in Average Daily Rate (ADR) of 8.5 per cent in Q1 24.

The major factors contributing to this growth included an increase in corporate travel, weddings, Meetings, Incentives, Conferences and Exhibitions (MICE) demand at the end of the financial year 2024.

The report states that the positive momentum from the first quarter is expected to continue into the second quarter, with business travel, MICE, and weddings driving the busy season. Additionally, the following quarter will also see a surge in leisure travel, particularly during the summer holidays.

"The first quarter has set the ball rolling for the hotel sector's strong performance throughout 2024, healthy consumer sentiments and domestic corporate travel will continue to be the key drivers.

Key business and leisure locations are witnessing strong demand, which has translated to growth in Average Daily Rate (ADR) levels, assisted by limited supply additions" said Jaideep Dang, Managing Director, Hotels and Hospitality Group, India, JLL.

He added "Broadly, the demand parameters are in line for the upwardly stable performance of the sector through 2024. The only blip could be the later part of summer, as that period may have increased outbound travel and perhaps a little lull after the general election results".

In the RevPAR growth, Chennai emerged as a leader in Q1 2024 by registering a growth of 21.7 per cent over Q1 2023, followed by Hyderabad and Delhi with Y-o-Y growth of 21.1 per cent and 19 per cent respectively.

The report also highlights that the hospitality sector also noted a RevPAR growth of 5.5 per cent Quarter-on-Quarter (Q-O-Q) in Q1 2024, compared to Q4 2023 (Oct-Dec).

This can be attributed to higher levels of corporate travel in Q1 2024 as opposed to Q4 2023, which typically sees a decrease during the holiday season.

During the quarter, there was a high demand for hotel rooms in both business and leisure destinations says the report. The occupancy levels in key business markets were strong, averaging around 70 per cent, and supported by significant growth in Average Daily Occupancy levels.