Rising Incomes, Connectivity Driving Expansion in Mid-Markets

As India’s travel landscape evolves, hotel chains are increasingly shifting their gaze beyond the metropolitan giants. Tier II and III cities, once overlooked in favour of the traditional leisure and business hubs, are now emerging as powerful engines of growth fuelled by rising disposable incomes, improved connectivity, a boom in pilgrimage and regional tourism, and the growing demand for organised accommodation. AJAY K. Bakaya, Chairman, Sarovar Hotels and Director, Louvre Hotels India, explains how this shift is changing the way operators are selecting sites, designing properties and shaping offerings so non-metro hotels deliver year-round demand.

The acceleration of branded-hotel growth beyond metropolitan areas is being fuelled by three structural shifts. These include improved connectivity through airports, highways and industrial corridors; rising disposable incomes and aspiration-led domestic travel; and the formalisation of smaller-city economies driven by manufacturing, MSMEs, education and healthcare hubs. Together, these factors are expanding demand for quality accommodation in places once seen as peripheral markets.

Further the demand from leisure, pilgrimage and MICE segments now shapes how leading hotel brands plan non-metro properties, from site selection and design layouts to marketing alliances and destination partnerships. For example, properties operated by Sarovar Hotels and Louvre Hotels India, that are close to religious destinations and heritage hubs have directed influenced the investment rationale and operating strategies in terms of banquet capacity, concierge tie-ups and city experience curation. This ensures that demand is sustained beyond peak seasons.

Tapping the Potential

For Sarovar Hotels and Louvre Hotels India, 65 percent of the portfolio is in tier II and III cities. Elaborating about this geographical footprint, Ajay explains, “When evaluating tier II and III cities we look for a stable corporate demand engine, whether industrial estates, government institutions, healthcare or education, as well as strong social and religious travel potential, weddings and local events. We also map city clusters connected by highway networks or tourism circuits, as these deliver compounding demand.” States such as Gujarat, Uttar Pradesh, Tamil Nadu and Rajasthan show particularly strong multi-segment potential.

In mid-market destinations the model prioritises spacious rooms, banquet facilities for weddings and celebrations, varied food and beverage options, and stronger community integration. “We customise service delivery and staffing to local expectations while retaining brand standards in areas like safety, hygiene and experience,” Ajay adds. What works in metro micro-markets is consciously adapted for valueled, relationship-driven smaller-city guests.

Non-metros The Next Hospitality Frontier

Tier II and III markets will continue forming the backbone of many hotel chains’ portfolios and revenue mixes over the next decade. As guests in these cities upgrade their expectations and branded hospitality matures, competition will intensify. Industry leaders see opportunities to lead through experiencedriven offerings, destination positioning and local relevance. The strategy is to stay ahead through scale, operational depth and thoughtful market entry rooted in long-term demand fundamentals.

Managing Obstacles

Expansion into tier II and III markets bring operational challenges too. Talent availability, slower rate maturity and infrastructure gaps are common challenges in these cities. “Our response has been to build locally, investing in skill development, structured training, multiskilling and leadership grooming, while leveraging flexible operating models and strong owner relationships,” Ajay informs. This allows the hotel chains to deliver consistent service benchmarks despite differing market realities.

Another aspect that calls for a tested approach is that of mitigating oversupply or market cannibalisation risk. Sarovar Hotels and Louvre Hotels India addresses this through disciplined feasibility filters that triangulate demand depth, competitive pipeline, pricing potential and owner vision. “Our confidence stems from an early-mover advantage, strong brand equity in smaller cities and our ability to operate efficiently with tailored cost structures,” Ajay shares. These strengths help the hotel brands deliver healthy market share and returns even in emerging or underpenetrated markets.