As investors evaluate their options, we expect further diversification into the hotel asset class by HNIs: Jaideep Dang
The hospitality sector in India is experiencing a significant resurgence in hotel investment activity, with transaction volumes reaching an impressive $175 million (INR 1432 crore) in the first half of 2023, according to the latest report by JLL. This marks a substantial upturn from the previous two years, which were marred by the pandemic, as the sector saw a total deal volume of $73 million (INR 580 crore) in 2022.
Unlike the year 2021, which mainly witnessed consolidations in hotel transactions, 2022 showcased a diverse array of transactions, including single asset deals and lease agreements for land earmarked for greenfield airport-terminal hotels. In the first half of 2023, there has been a notable surge in investment activity stemming from National Company Law Tribunal (NCLT) proceedings, particularly involving high-value assets burdened with debt in thriving markets such as Mumbai and Bengaluru.
JLL predicts that this positive investment momentum in the hospitality sector will continue throughout the second half of 2023, with an expected volume of around $88 million (INR 722 crore), extending into 2024. Jaideep Dang, Managing Director of the Hotels and Hospitality Group in India at JLL, expressed his optimism, stating, “The investment landscape remains attractive due to favourable macro-economic factors, an expanding commercial market, and improved air connectivity.”
Key findings from the report titled ‘Hotel Investment Trends: India H1 2023’ highlight several noteworthy trends in the Indian hotel investment landscape. High-net-worth individuals (HNIs) are increasingly diversifying their investment portfolios by venturing into the hotel asset class. Furthermore, portfolios and operating assets are becoming more attractive to investors compared to greenfield projects. NCLT resolution cases are gaining traction, with a special focus on operational assets in highly sought-after destinations. The conclusion of the Emergency Credit Line Guarantee Scheme (ECLGS) may open up new opportunities for investors, as it could lead to an increase in tradable assets in the market. Inbound institutional investment is also gaining momentum.
In 2022, a record number of hotel signings occurred, totaling 19,860 keys. While greenfield projects dominated the hotel signing landscape, brownfield projects saw a growing share, comprising 44% of the total rooms signed in 2021 and 32% in 2022, as reported. Throughout the pandemic, individual owners recognised the value of partnering with branded operators through franchise agreements to leverage their distribution and marketing strengths. Tier 1 cities experienced a gradual rise in the share of lease/revenue share agreements as owners sought models with reduced risk exposure.
Moreover, 2022 marked a record-breaking year for hotel openings, with a total of 9,961 keys. The midscale segment maintained the highest market share throughout the years, followed by the upscale, upper upscale, and luxury segments.
Dang said, “As investors evaluate their options, we expect further diversification into the hotel asset class by HNIs. We see increased interest from hotel investors for both operating assets and portfolios. The other rising trend is retail investor confidence in hotel stocks, which is further encouraging privately held hotel-owning companies to enter public markets.” The hospitality sector’s robust rebound in investment activity bodes well for India’s economic recovery and the continued growth of the hotel industry in the country.