India’s hotel sector is experiencing a revival in new hotel development, with investments returning to pre-pandemic levels in the first half of 2024.
In 2023, greenfield developments accounted for about 48 per cent of hotel brand signings by key, rising further to 53 per cent in the first half of 2024, marking a return to pre-pandemic levels seen in 2019, according to data shared by HVS Anarock with Business Standard.
“While brownfield projects emerged as the preferred option post-pandemic, driven by lower risk and faster completion timelines amid economic uncertainty, the focus is now shifting back to greenfield projects,” said Mandeep S Lamba, Chairman and Managing Director, HVS Anarock. “This renewed interest is primarily driven by hotel chains that are aggressively expanding in Tier II, III and IV cities, where both business and leisure travel are witnessing robust growth,” he added.
JLL had previously said in a report that during the first half of 2024, six hotel deals were completed, including operating assets in Tier I and leisure markets, as well as ground leases in the airport district for greenfield developments.
The percentage of investments in hotel projects in brownfields has declined after a sudden surge during the pandemic.
Greenfield hotel development refers to the construction of new hotels on previously undeveloped land, while brownfield projects involve the redevelopment or expansion of existing properties.
“Indore, Kanpur, Bhubaneswar, Varanasi, Udaipur, Mangalore and Coimbatore are witnessing a surge in demand as greenfield projects here can capture the first-mover advantage and cater to the middle class’s growing thirst for regional travel,” said Nandivardhan Jain, CEO of Noesis Capital Advisors, a hotel transaction and advisory firm.
He added that government initiatives to boost sustainable tourism offer incentives for the development of new areas and that some states facilitate land acquisition through one-stop-shop authorizations.
Deepak Jain, CEO of MayFair Consultancy, another hospitality consultancy, said that post-COVID, the hotel sector has seen a major investment shift as investors have witnessed positive returns on investments in hotels. He added that post-COVID, banks have been more open to lending to hotels due to their profitability.
MayFair Consultancy has signed five management contracts and is in an advanced phase of signing six more hotel contracts, spread across India and spanning from the budget to high-end hotel segment.
Industry experts believe that greenfield hotel developments offer flexibility as, unlike greenfield developments, they do not lock hotel chains and developers into an existing structure. In addition, greenfield developments are preferred for expansion into emerging destinations due to the lack of quality and easily accessible hotel infrastructure.
Developing hotel projects in India can take between 36 and 60 months, depending on the type of project and location, due to regulatory and approval delays, Lamba said. He added that hotel developers often need to make large investments in infrastructure, which can increase costs and delay project completion. Land acquisition is another major hurdle, especially in areas where property titles may be unclear or where local communities may resist development.
“Macroeconomic factors such as inflation, rising construction costs, fluctuating interest rates and limited lending options for non-institutional investors in the sector can further complicate new projects, especially when combined with long development timelines,” Lamba added.
Industry experts agree that the rise of greenfield travel is not limited to leisure travel, but also responds to growing demand in the corporate travel segment.
“The real game changer is the luxury and high-end segment in tier two cities. These cities offer the ideal combination of affordable land, rising disposable incomes and less competition due to limited supply of branded rooms. In places like Ludhiana, Chandigarh, Bhopal, Patna or even spiritual centres like Varanasi, Ayodhya, Puri, Tirupati, Katra, Ujjain and Udupi, the potential for boutique-style luxury projects on greenfield land is huge. This is where investors can find untapped markets and create iconic, high-margin hotel properties,” added Nandivardhan.
First published: September 22, 2024 | 17:50 IS
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