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Double-digit RevPAR growth continues, demand drivers remain intact

According to HVS Anarock, Jun’23 was another strong month with hotel industry RevPAR of INR4,288 being 27% above Jun’19 (pre-Covid) levels and 13% above Jun’22 levels. For Q1FY24 overall (Apr-Jun’23), industry RevPAR is up 14% YoY with ARRs up 17% YoY and occupancies lower by 200bps YoY. While the Jul-Sep’23 period is seasonally the weakest quarter owing to monsoon impact, hotels continue to follow a strategy of keeping rates at least 8-10% higher than previous year levels. The focus will now be on H2FY24 (Oct’23-Mar’24) when demand drivers such as the G20 Summit, Men’s Cricket ODI World Cup, wedding season and international tourist arrivals recovering to pre-Covid levels are likely to come to the fore and translate in double-digit RevPAR growth for hotels.

Demand remains strong, H2FY24 performance is key

Our channel checks for forward hotel room rates for Aug-Oct’23 compared to the Aug-Oct’22 period (previous year) indicate that hotels continue to follow a strategy of keeping rates at least 8-10% higher than pre-Covid levels. While the Jul-Sep’23 period is seasonally the weakest quarter owing to monsoon impact, demand drivers remain intact heading into H2FY24 (Oct’23-Mar’24) with the G20 Summit, Men’s Cricket ODI World Cup, wedding season and international tourist arrivals recovering to pre-Covid levels expected to drive demand.

Industry RevPARs expected to grow at double-digit CAGR over CY22-CY25

According to the India Hospitality Industry Overview 2022 by HVS Anarock, industry level occupancies, which recovered to 60% in CY22, are estimated to reach 66% in CY23, 68% in CY24 and 70% in CY25. At the same time, industry ARR which stood at INR6,100 in CY22 is estimated to reach INR7,106 in CY23, INR7,639 in CY24 and INR7,983 in CY25. In RevPAR terms, this implies that compared to CY22 industry RevPAR of INR3,600, RevPAR may rise to INR4,690 in CY23, INR5,194 in CY24 and INR5,588 in CY25 or a 15.8% CAGR in industry RevPAR over CY22-25. According to various industry estimates, with incremental room supply CAGR expected to range between 5-6% over CY22-26, the medium-term demand supply dynamics remain healthy for the Indian hotel sector.

Brand signings pick up in CY22, management contracts rule the roost

As per HVS Anarock, brand signings increased 33% YoY in CY22 with 166 new hotels with 14,885 rooms being signed, while 90 hotels with 5,702 rooms were rebranded. Management contracts continue to account for the majority share of signings in the Indian hotel sector, and in CY22, management contracts accounted for ~80% of the total signings by keys during the year. Hotel rebranding or conversion accounted for 27.7% of keys signed in CY22 vs. 20% in CY21, while 35.8% of the keys signed in CY22 were for greenfield projects as opposed to 32% in CY21.

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