With over two and a half decades in the hospitality industry, my experience spans markets that have attracted both international interest and domestic excitement. The initial Dubai buzz in 1999, following the opening of Burj Al Arab, made a powerful statement and set off a wave of impressive assets in quick succession. While recent years have brought magnificent hotels like Atlantis the Royal, the true sweet spot for me was about 15 years ago when each visit to Dubai revealed a dramatically changing landscape.
Vietnam also experienced a boom, with signings happening almost weekly, though this momentum faded faster than expected due to corruption and scandals. The US had a solid run before COVID, and many other global destinations have thrived in the past few decades. These examples serve as reminders to basically manage expectations as booms like this eventually run out of steam sooner or later. How will India fare? Let’s explore the big picture.
Looking at the first half of the year for a key KPI, Total GOP Margins across 2019, 2023, and 2024, South Asia and APAC show positive year-on-year growth, now well ahead of the 2019 benchmark. Meanwhile, East Asia and Oceania are not looking so good, with declines compared to both last year and 2019. For Hong Kong, where the benchmark is 2018, East Asia’s numbers look even worse than they appear.
At first glance, it’s not immediately evident what all the India excitement is all about so let’s dig a little deeper. SEA is doing just as well but once Maldives is excluded from South Asia’s numbers, it reveals that India is far outpacing its neighbors. Maldives shows virtually no growth from 2023 to 2024.
Other factors driving interest in India are economic. A GDP growth rate of 7%+ for three consecutive years is impressive, closing the gap between Germany and Japan. India is on track to become the third-largest economy in the world, only behind the US and China. However, India’s GDP per capita ranking (136th) is a stark contrast to the US (6th) and even China (69th), a more comparable nation due to its size.
What does this mean for the hospitality industry? It’s quite simple, more wealth distributed among 1.5 billion people creates an enormous wave of brand-new travelers with greater disposable income, requiring significantly more hotel rooms across the subcontinent. This mirrors China’s growth 20 years ago, but a key difference between the two nations happened just a few months back when India surpassed China as the world’s most populous nation. While China’s population is expected to shrink below one billion people in the coming decades, India will continue to grow, reaching 1.7 billion in just 30 years from today.
With a growing economy, population, and current market performance, it seems the cards are stacked for India — its hospitality sector seems primed for growth. Streamlining bureaucracies, enhancing financial transparency, and tightening policies will further stabilize this growth, but the next 3-4 years appear promising for hotel development and market performance, barring any global catastrophe.
Expenses will rise, with payroll per available room in South Asia increasing by 4.7% in the past 12 months. Despite this, labor costs remain low compared to other Asian regions. Over the past 24 months, it has been the rate that has driven India’s growth as occupancies achieved peak levels. This growth pattern, however, may not be sustainable, as rate ceilings will eventually be reached, similar to the experience in Singapore and Maldives in 2024 which has stunted their growth.
Looking at the right-hand side of the above slide, you will see that group rates have risen nearly 60% compared to 2019. Whilst at first glance that looks astonishing, it’s real and all segments are on the rise, not just groups.
The final topic focuses on asset classes. With all this new inventory being signed and quickly coming to fruition, what is the most lucrative hotel type to invest in? The assumption might be luxury hotels.
While luxury hotels do lead, the gap compared to full-service hotels in 2024 is just 3%, a far smaller difference than seen in other strong markets, where gaps of 25% have been noted. Demand is so wide and spread across all asset classes, that deciding on what to build and operate is both easier and at the same time more challenging for developers and operators. India’s market is one to watch.
Story contributed by Tareq Bagaeen, Senior Consultant with HotStats.
