India's hotel demand outpaces supply, boosting occupancy and rents, with expansion in smaller cities reducing oversupply risks.

India's hotel demand is growing faster than supply, with premium room demand expected to rise 8–10% annually over the next three years, outpacing supply growth of 5–6%. This imbalance is driving occupancy to 72–74% and average room rents to ₹8,200–8,500 in 2025–26. Expansion is shifting to Tier-II and Tier-III cities, including airport hubs in Delhi and Mumbai, and spiritual tourism sites like Ayodhya, Varanasi, and Tirupati, each developing 2,000–2,500 premium rooms. These trends reduce oversupply risks. ICRA projects stable operating margins of 34–36% in 2025–26, supported by cost efficiency and asset-light models, maintaining a Stable outlook for the sector.