Hospitality sector witnesses $401 million investment activity in FY23: JLL

Hotel transaction volumes in Q1FY24 at $78 million; Approximately 25% of the total value was transacted for under-construction hotels

Hotel Investments in India touched $401 million in 2023 which was nearly a four-fold increase in the volumes witnessed in 2022. As many as 25% of the overall value of transactions involved under-construction hotels in both business and leisure destinations, a report by JLL titled. Hotel Investment Trends - India 2023 showed.

Hotel Investments in India touched $401 million in 2023 which was nearly a four-fold increase in the volumes witnessed in 2022. (Picture for representational purposes only) (Pixabay)

High Net Worth Individuals (HNIs) and Institutional Capital played a major role in hotel investments activity during 2023, accounting for the largest share at 31%. Real estate developers accounted for 27% of investments, followed by owner-operators at 11%, it said.

There is an increasing interest in hotel development activity in Tier-2 cities, with 54% of the total signings taking place in these locations

Q1 2024 witnesses 80% y-o-y increase in hotel transaction volumes touching $78 million

The report mentions that the first quarter of 2024 witnessed an almost 80% year-on-year increase in hotel transaction volumes, touching $78 million.

The sector has been witnessing a surge since the last calendar year (2023). A record number of hotel signings and openings took place in 2023, with 25,176 keys signed and 12,647 keys opened. There is an increasing interest in hotel development activity in Tier-2 cities, with 54% of the total signings taking place in these locations.

2023 witnessed 22 hotel transactions

The year 2023 also achieved a significant milestone of 22 hotel transactions, which is the largest number of assets traded in the last decade. It also saw three hotel companies successfully debuting on the stock market through their Initial Public Offerings (IPOs).

There were greenfield projects, totaling approximately 13,600 keys in 2023, surpassing the figure from the previous year (8,000 keys), showcasing the enduring confidence of hotel developers in the long-term growth potential of the sector.

Furthermore, the report notes the emergence of tourism and leisure destinations as centers for Meetings, Incentives, Conferences, and Exhibitions (MICE) activities, with the signing of three large-format hotels with a total of approximately 900 keys.

Increase in lease and revenue share models

While management contracts continue to dominate the majority of signings, representing 78% of the total number of keys, there has been a notable increase in lease and revenue share models across different tiers, comprising 4% of the total keys signed. The robust performance of the commercial sector has directly benefited major urban centers, as Tier 1 cities experienced the highest number of keys signed since 2020, with a notable increase of 31% as compared to 2022.

The upper upscale segment saw the highest number of keys changing hands, followed by the upscale, luxury, and midscale segments.

There were five transactions facilitated through the insolvency resolution process under the National Company Law Tribunal (NCLT), representing 33% of the total value of transactions in 2023, which amounts to USD 133 million.

“The year 2023 has been a record year not only in terms of hotel investments but also in terms of new branded hotel openings and signings. Furthermore, 2024 has started with strong tail winds as we saw prominent hotel deals early on in this year. The enthusiasm of the sector is further strengthened by performance of hotel stocks, which also gave confidence to a couple more hotel companies entering public markets and achieving strong valuations," said Jaideep Dang, Managing Director, Hotels and Hospitality Group, India, JLL.

“We expect this story to continue in 2024 on back of diversified avenues of growth such as expanding commercial office markets and with development of infrastructure such as new airports, expressways, increasing pilgrimage travel leading to the emergence of new realty and tourism hotspots across the country”, he added.