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Hotel Premiumisation May Be Losing Momentum, Analysts Warn

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  //travel-leisure.news-articles.net/content/2025/ .. sation-may-be-losing-momentum-analysts-warn.html
  Published in Travel and Leisure on Thursday, November 27th 2025 at 5:25 GMT by moneycontrol.com

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Hotel Premiumisation May Be Losing Momentum, Analysts Warn

In a recent market briefing, experts cautioned that the luxury hotel sector in India may no longer be the growth engine it once seemed, as the room for expansion narrows amid changing consumer preferences, cost pressures, and a tightening macro‑economic backdrop.

The commentary, published by MoneyControl, gathers insights from a panel of market analysts and hotel industry insiders who examine the trajectory of India’s hospitality market. While the hotel sector has traditionally benefited from rising domestic tourism and the buoyant “revenues per available room” (RevPAR) metric, the latest data suggests that the high‑end segment is plateauing.

1. A Sharper Look at the Numbers

The panel draws heavily on the Indian Hotels Association (IHA) statistics, which show a modest 5% rise in total room nights last fiscal year, with the premium sub‑segment lagging at just 2%. In contrast, the economy‑class hotels recorded a 6% uptick, suggesting that the broad swath of budget travellers is still the main growth driver.

Occupancy rates for luxury hotels – a key barometer of demand – fell from 75% in FY22 to 70% in FY23, with an average RevPAR that plateaued around ₹3,600 per night, down from ₹3,800 the previous year. The panel notes that these figures are still healthy relative to global standards, but the growth rate is considerably slower than the 12% compound annual growth rate (CAGR) observed in the 2010‑2019 period.

The analysts also referenced the Global Hotel Alliance’s “Hotel Performance Review” to highlight a global slowdown: luxury hotel occupancy rates worldwide fell by 2% in 2023, and RevPAR growth was capped at 3%. The India trend, while slightly better, mirrors this international downturn.

2. Why Premiumisation Is Slowing

Cost of Capital and Rising Debt
Many premium hotel operators have leveraged high levels of debt to finance expansion, and rising interest rates mean the cost of servicing that debt is eating into profit margins. Analyst Rakesh Kumar from JM Financial points out that “a 50 basis‑point hike in the repo rate can translate to a 10% uptick in the cost of capital for a 30% debt‑leveraged property.”

Shifting Consumer Preferences
The “experience economy” is no longer confined to luxury hotels. The rise of boutique serviced apartments, experiential stays (such as heritage hotels and eco‑resorts), and short‑term rentals like Airbnb has diluted the share of high‑spend travellers willing to book premium rooms. A survey by Booking.com (referenced in the article) found that 60% of travellers now prefer “authentic local experiences” over branded luxury rooms.

Economic Uncertainty
Inflationary pressures and a slowdown in the Indian economy have made discretionary spending tighter. According to a report by the Reserve Bank of India, the consumer price index rose by 6.3% in 2023, squeezing disposable income. Consequently, the segment of affluent travellers has contracted, limiting the premium hotel’s ability to increase rates.

Competitive Landscape
The proliferation of mid‑scale and upscale hotel chains, including the entry of international brands like Marriott and Accor, has intensified competition. These entrants have introduced “hybrid” concepts that blend luxury service with more affordable pricing, thereby attracting a broader customer base.

3. Implications for Investors and Stakeholders

Stock Valuations
The analysis highlighted that the price‑earnings (P/E) ratios of leading hotel operators such as OYO, Taj Hotels, and Lemon Tree Resorts have stabilized at a 12‑15x range, down from the double‑digit levels seen in 2019. Analysts suggest that investors should remain cautious, as “the market is pricing in a potential slowdown in premium revenue growth.”

Real Estate Valuations
Premium hotel properties, especially those in prime metros like Mumbai and Bengaluru, have seen a modest decline in land value appreciation, reflecting the reduced demand for high‑end accommodation. This trend could affect the asset‑backed valuation models used by many hotel REITs.

Strategic Shifts
Several hotel operators are pivoting to diversify their portfolio. Some are expanding into the MICE (Meetings, Incentives, Conferences, and Exhibitions) segment, while others are exploring partnerships with hospitality technology firms to offer personalised experiences. The article quotes a spokesperson from the Indian Hotels Association noting that “there is a strategic shift towards niche markets such as boutique and experiential stays, which may offer better margins.”

4. Key Takeaways for the Hospitality Landscape

1. Growth is narrowing: Premium hotel revenue and occupancy growth have slowed compared to the last decade.
2. Cost pressures: Rising interest rates and high debt levels are squeezing margins.
3. Consumer shift: Demand for authentic and boutique experiences is overtaking traditional luxury offerings.
4. Investment caution: The market is becoming more discerning about premium hotel valuations.
5. Strategic pivot: Operators are diversifying into MICE and experiential niches to maintain growth.

5. Looking Ahead

While the analysis is not a definitive verdict, it signals a potential realignment in India’s hospitality sector. Investors, hotel operators, and policymakers should monitor these trends closely. As highlighted in the MoneyControl article, “the premiumisation play may not be as compelling as it once seemed, but there remains opportunity in the evolving hospitality landscape.”

For further reading, the article recommends looking at the IHA’s annual “Hotel Industry Outlook” and the RBI’s “Monetary Policy Statement” for insights into how macro‑economic policy may affect the sector’s future trajectory.