The rating agency expects operating performance to remain healthy despite the high base of FY2025, driven by resilient domestic leisure travel, MICE activity, weddings, concerts, sports events and steady corporate demand.

Occupancy and Room Rates to Remain Firm

ICRA estimates pan-India premium hotel occupancy at 72–74% in FY2026, slightly higher than the 71–73% recorded in the first 11 months of FY2025.

Average Room Rates (ARRs) are projected to increase to ₹8,200–8,500, up from ₹8,000–8,200 in FY2025, supported by sustained demand momentum and strong pricing power across key markets.

The positive pricing environment reflects a continuing demand-supply imbalance that is expected to support revenue growth over the medium term.

Demand Outpacing Supply for Next 2–3 Years

Premium hotel room inventory across 12 major cities is expected to grow at a 5–6% CAGR during FY2025–FY2026.

However, demand is projected to expand at a faster 8–9% rate, creating a structural gap that is likely to persist for the next two to three years. This imbalance is expected to:

• Sustain high occupancy levels
• Support room rate growth
• Protect profitability margins

Margins Well Above Pre-Covid Levels

Operating margins for the premium segment are forecast at 34–36% in FY2026, broadly in line with the estimated 35.8% in FY2025.

This marks a significant improvement from 20–22% pre-Covid levels, supported by:

• Operating leverage
• Cost rationalisation initiatives
• Improved revenue mix
• Better yield management

The stronger margin profile has led to improved cash flows, deleveraging and better debt coverage metrics among rated hotel companies.

ICRA expects the sector’s credit outlook to remain stable, backed by disciplined capacity additions and sustained demand visibility.

Diversified Demand Reducing Risk

The industry’s recovery is no longer dependent on a single segment. Demand drivers now include:

• Corporate travel
• Weddings and social events
• MICE (Meetings, Incentives, Conferences, Exhibitions)
• Religious tourism
• Sports and concerts
• Leisure travel to Tier-2 and Tier-3 cities

This diversified demand base has reduced vulnerability to global slowdowns and cyclical shocks.

Shift Toward Asset-Light Expansion

Hotel companies are increasingly adopting asset-light models, expanding through:

• Management contracts
• Franchise agreements

These strategies generate fee-based income with lower capital expenditure, improve return on capital employed (ROCE), and strengthen free cash flows.

Sector Outlook

With demand growth outpacing supply, stable pricing power, strong margins and improving balance sheets, India’s hospitality sector appears well-positioned for another year of healthy performance in FY2026.

The next two to three years could remain favourable, provided macroeconomic stability and domestic travel momentum continue.

Also Read: Hospitality sector witnesses Growth

The post ICRA Projects 9–12% Revenue Growth for Indian Hotels in FY2026; Occupancy, Room Rates to Stay Strong appeared first on Square Feat India.

Mumbai, 23rd January 2025: Net absorption of commercial office space across India’s top six markets is projected to exceed 60 million square feet (msf) in FY2026, the highest ever, according to a report by ICRA. The cities—Bengaluru, Chennai, Delhi-NCR, Hyderabad, Mumbai Metropolitan Region (MMR), and Pune—are expected to achieve a 3-4% increase in absorption over FY2025’s estimated 59-60 msf.

Despite a surge in new office space supply of 125-130 msf across FY2025 and FY2026, vacancy levels are anticipated to decline to 14-14.5% by March 2026, marking a multi-year low. This trend is driven by robust demand from global capability centers (GCCs), domestic corporates, increased physical occupancy in offices, and revival in IT-SEZ spaces due to regulatory changes.

“Leasing activity has remained resilient, with net absorption reaching approximately 54 msf in FY2024 and 44 msf during the first nine months of FY2025. Vacancy levels dropped by 70 basis points to 14.7% as of December 2024, compared to March 2024. By March 2026, occupancies in the top six markets are expected to reach a decade-high of 85.5-86%,” said Anupama Reddy, Vice President and Co-Group Head – Corporate Ratings, ICRA.

India’s Office Market Resilient Amid Global Slowdown

The Indian office market has defied global economic sluggishness due to its cost-effective, highly skilled workforce, a growing domestic economy, and competitive rental prices. These factors continue to attract global firms, strengthening India’s position as a preferred real estate investment destination.

ICRA expects the credit profiles of office space operators to remain stable, supported by an increase in net operating income (NOI). The debt-to-NOI ratio for operators is forecasted to improve to 3.9-4x by March 2026, compared to 4.3-4.4x by March 2025. Debt service coverage ratios (DSCR) are projected to rise to 1.45-1.5x in FY2026 from 1.35x in FY2025.

Retail Malls See Growth Amid Challenges

Retail mall operators are also expected to witness growth, with rental income projected to increase by 7-8% year-on-year in FY2025 and 8-9% in FY2026. New mall supply of 9-9.5 msf each year in FY2025 and FY2026 is expected to stabilize vacancy levels at 21% as of December 2024 and maintain occupancy rates of 79-80% through March 2026.

“Retail consumption growth is expected to moderate to 6-7% in FY2025 due to the General Elections, weather disruptions, and the impact of extended monsoons. However, a rebound is anticipated in H2 FY2025, driven by the festive and wedding seasons. Segments such as food, apparel, accessories, and hypermarkets will continue to drive growth,” added Reddy.

Despite the positive outlook, challenges persist for retail mall operators, including the growing competition from e-commerce and q-commerce platforms, which are increasingly impacting even premium brands in the fashion segment.

ICRA estimates the debt-to-NOI ratio for mall operators to improve to 4.2-4.5x by March 2026 from 4.6-4.8x in March 2025, driven by rising NOI levels. DSCR is expected to remain stable at 1.45-1.5x during FY2025-FY2026, indicating a healthy financial outlook for the sector.

Conclusion

The sustained growth in India’s office and retail real estate markets underscores the country’s resilience and potential as a global investment hub, driven by its robust economic fundamentals and growing demand for quality commercial spaces.

Bengaluru office demandAlso Read:

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Sales Growth and Market Dynamics

ICRA forecasts a 10-12% increase in the area sold across the top seven cities, estimating it to reach between 785 and 800 million square feet (msf) in FY2025. This growth follows a high base in FY2024. Although the sales growth rate has moderated, the overall sales velocity, collections, and inventory levels are projected to stay robust. The report highlights that new launches are expected to rise by 12% year-on-year (YoY) to 767 msf in FY2025. This increase is attributed to historically low inventory levels and strong demand.

As of June 2024, inventory levels had decreased to 687 msf from 732 msf in March 2023, with a low years-to-sell (YTS) ratio of 0.9 times. This indicates a favorable market environment with balanced sales and launches.

Financial Outlook

Anupama Reddy, Co-Group Head & Vice President– Corporate Ratings at ICRA, noted that despite a slower first quarter, the residential real estate market is poised for substantial growth. Sales in FY2024 saw a healthy 19% YoY increase, with a consistent rise in quarterly sales over the past eight quarters, excluding the traditionally weaker first quarters.

The report also indicates that while gross debt is expected to increase by 6-7% in FY2025 due to new business development and ramped-up project execution, leverage will remain comfortable. The ratio of gross debt to cash flow from operations (CFO) is projected to be between 1.55 and 1.60 times as of March 2025, a slight improvement from 1.63 times in March 2024.

Price Trends and Market Sentiment

The average sale price (ASP) of residential properties rose by 11% in FY2024 and is expected to increase by an additional 5-6% in FY2025. This price growth is driven by a higher proportion of luxury units and greater pricing flexibility due to reduced inventory. The shift in consumer preferences towards larger spaces, influenced by the pandemic, has led developers to realign their product offerings accordingly.

Reddy emphasized that despite the anticipated rise in gross debt levels, leverage will remain manageable, supported by strong cash flows. The overall outlook for the residential real estate sector remains stable, reflecting a positive trajectory for the coming fiscal year.

Conclusion

ICRA’s report underscores a resilient residential real estate market in India, with strong growth prospects and stable financial conditions. The anticipated rise in sales and prices, coupled with manageable leverage, paints a promising picture for the sector in FY2025

Source: Propequity, ICRA Research

Also Read: Mumbai’s Rs 10 Crore and above luxury residential units clock highest-ever half-yearly sales of Rs 12,300 crore

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