India’s hotel investment market surges 67% to USD 567 million in 2025: Tier II - III cities drive expansion as institutional capital dominates growth: JLL

 

India’s hotel investment market surges 67% to USD 567 million in 2025: Tier II - III cities drive expansion as institutional capital dominates growth: JLL

 

• Institutional Capital and Private Equity dominated at 35% of total volume, followed by HNIs and family offices (27%), and listed hotel companies (25%)
• Tier II and III cities capture 40% of transaction volume, with 71% of branded hotel signings (51,647 keys across 424 hotels) concentrated in emerging cities
• Luxury and upscale segments dominated transaction volume at 42% and 41% respectively, with 69% of transactions involving operational income-producing hotels
• Branded hotel signings increased 23% year-over-year to 51,647 keys, with greenfield development reaching 33,170 keys, surpassing 2024 by 17%
• Large-format hotels (250+ keys) grew to 29 signings from 21 in 2024, expanding beyond metros into Guwahati, Visakhapatnam, Indore, and Pushkar
• Government initiatives including land monetization at airports and strategic micro-markets (Yashobhoomi, Neopolis, Fintech City, Jewar Airport) and the tourism-focused FY 2027 budget are creating substantial new investment opportunities

 

MUMBAI, 18 MAY: 2026: India’s hospitality sector demonstrated exceptional momentum in 2025, with hotel investments reaching approximately USD 567 million across 28 transactions, a remarkable 67% increase from the USD 340 million recorded in 2024. This surge reflects robust investor confidence in India’s tourism infrastructure and the sector's fundamental strength across multiple market tiers.

 

The investment landscape revealed a sophisticated diversification of capital sources. Institutional Capital and Private Equity firms led transaction activity at 35% of total volume, followed by High Net-worth Individuals (HNIs), family offices, and private hotel owners (27%), listed hotel companies (25%), real estate developers (8%), and owner-operators (5%). This balanced investor composition demonstrates the sector's appeal across diverse investment philosophies and risk profiles.

 

Tier II and III cities emerged as significant growth engines, capturing approximately 40% of total transaction volume, momentum sustained from the previous year. These markets featured premium assets including luxury resorts in Rishikesh, upper-upscale properties in Goa, and upscale to midscale hotels across emerging urban centers such as Ludhiana, Nashik, Vadodara, Udaipur, and Lonavala.

 

“India’s hotel investment market is reflecting a clear step-up in both investor confidence and market depth, with rising transaction activity supported by a broader mix of institutional and domestic capital. What is particularly encouraging is the continued expansion beyond gateway cities, with Tier II and III markets steadily evolving into more mature, investment-grade destinations backed by improving operating performance and scalability. This shift is meaningfully expanding the investable universe and enabling more strategic capital deployment across geographies. The momentum has carried strongly into 2026, with a robust start to the year underscoring sustained capital appetite. Beyond volumes, we are seeing increasing sophistication in how capital is being deployed, through platform-led strategies and institutional partnerships, signaling a more mature and organized investment landscape. At the same time, strong asset performance has introduced a degree of supply-side discipline, with high-quality hotels being tightly held, making available opportunities more selective and highly sought after,” said Gaurav Sharma, Managing Director, Hotels, India & Senior Director, Hotels Capital Markets, Asia.

 

“Looking ahead, a supportive policy environment, including land monetization initiatives and tourism-led infrastructure development, is expected to unlock new avenues for investment. While external uncertainties remain a factor to watch, the underlying drivers, resilient domestic demand, infrastructure expansion, and diversified capital sources, provide a strong foundation for continued growth. We expect this to translate into higher transaction activity through the year, with more assets coming to market and increased participation from institutional investors, reinforcing India’s position as a compelling hospitality investment destination,” he added.

 

Beyond traditional hotel transactions, 2025 witnessed substantial institutional capital deployment for consolidation and strategic partnerships totaling approximately USD 125 million. The operational performance backdrop supports continued investment activity. Strong hotel performance has created scarcity in tradeable assets as owners increasingly retain high-performing properties. This dynamic has positioned available premium hotels as rare opportunities commanding significant investor attention and premium valuations.

 

Strong operational assets and premium positioning lead market activity amid geographic expansion

 

Transaction composition revealed strategic asset preferences. Operational hotels represented 69% of total transaction volume, with under-construction or non-operational properties accounting for 18%, and land transactions including leases comprising 13%. This distribution reflects investor preference for income-producing assets with established operational track records.

 

Segment analysis showed the luxury category commanding the highest transaction volume share at 42%, followed closely by upscale properties at 41%, indicating strong demand for premium positioning. Upper-upscale (9%), midscale (6%), and economy (2%) segments completed the market distribution.

 

Branded hotel signings reached 51,647 keys across 424 hotels in 2025—a 23% increase over the previous year. Significantly, 71% of these signings by key count were concentrated in Tier 2 and 3 cities, demonstrating the geographic expansion of organized hospitality into India's emerging urban centers. Management contracts continued their dominance, increasing from 81% in 2024 to 84% in 2025, while franchise agreements held steady at 14%. Lease and revenue-share arrangements declined from 5% to 2%, reflecting operator preferences for asset-light growth models that optimize returns while minimizing capital requirements.

 

Greenfield development activity reached approximately 33,170 keys in 2025, surpassing 2024's record by 17%. This sustained pipeline expansion signals developer confidence in long-term sector fundamentals despite broader economic uncertainties.

 

Large-format hotels of 250+ keys gained momentum, with 29 signings in 2025 compared to 21 the previous year. While concentrated in Tier 1 markets including Mumbai, Bengaluru, Hyderabad, Pune, and Delhi, this format expanded into growing markets such as Guwahati, Visakhapatnam, Indore, and Pushkar, demonstrating geographic diversification of premium supply.

 

Strong momentum continues in 2026, balanced by supply constraints and geopolitical considerations

 

First quarter 2026 results underscore accelerating momentum, with transaction volumes reaching approximately USD 185 million—a 58% increase from Q1 2025's USD 117 million. Notable activity includes Warburg Pincus acquiring a 41% stake in Fleur Hotels (Lemon Tree Hotels subsidiary) with a USD 107 million commitment for portfolio expansion, alongside operating hotels, land monetization transactions, and platform consolidation acquisitions.

 

Multiple structural catalysts support sustained investment activity through 2026. Substantial liquidity among listed hotel companies and anticipated capital market entries by additional operators seeking portfolio expansion create favorable conditions for transaction flow, while Institutional Capital and Private Equity funds actively seek deployment opportunities for hotel portfolio acquisitions. Government initiatives present significant opportunities through land monetization at airports and government-led auctions in strategic micro-markets including Yashobhoomi (IICC), Neopolis in Hyderabad, Fintech City in Chennai, and Jewar Airport. The FY 2027 tourism-focused budget further supports expansion through initiatives to develop 15 new cultural destinations around archaeological sites and transport infrastructure upgrades designed to stimulate demand and development.

 

Goa exemplifies successful conversion dynamics, consistently demonstrating high rates of independent and unbranded properties transitioning into established brand portfolios. Enhanced connectivity through expanded air services and improved road, rail, and water infrastructure positions Goa for continued growth as India's premier leisure market and year-round tourism destination. Branded hotel openings in 2025 totaled approximately 8,990 keys across 103 hotels, with 64% of keys concentrated in Tier 2 and 3 cities, indicating balanced supply expansion across market segments.

 

However, certain dynamics warrant careful monitoring. The tightening supply of credible tradeable hotel stock presents both opportunity and constraint—strong operational performance encourages owners to retain high-performing assets, limiting availability of premium properties. This scarcity dynamic supports valuations but may constrain transaction volumes if supply constraints persist. Geopolitical uncertainties could impact international travel patterns and increase stock market volatility, potentially affecting investor sentiment, though the domestic tourism focus of many investments provides some insulation from external shocks.

 

The market's evolution toward consolidation and platform-level investments reflects sector maturation, with strategic partnerships and entity-level capital deployment indicating sophisticated approaches to scale creation and market positioning rather than purely asset-level transactions. India's hotel investment market demonstrates robust fundamentals supported by diversified capital sources, geographic expansion into emerging markets, government infrastructure initiatives, and strong operational performance. The combination of institutional sophistication, platform consolidation, and expansion into Tier 2 and 3 cities positions the sector for sustained growth while navigating external uncertainties through diversified risk management and strategic market positioning.