Hotel investments surge 197% as Tier II, III cities grab 60% of deal value | Personal Finance

India’s hotel investment market recorded transactions worth $497 million across 11 deals in the first half of 2026, a 197% increase from $167 million in the corresponding period last year, as real estate developers emerged as the biggest investors and capital shifted towards smaller cities, according to a report by property consultancy JLL. Full-year transaction volumes are projected to reach $1.1 billion, up 94% from $567 million in 2025.

 

Real estate developers accounted for 58% of hotel investment transaction volumes in January-June 2026, marking a shift from 2025, when high-net-worth individuals (HNIs), family offices and private hotel owners together accounted for about 54% of activity. Listed hotel companies contributed 31.1% of transaction volumes in the first half, while HNIs, family offices and private hotel owners accounted for 8.2%, according to JLL’s Hotel Investment Trends in India, H1 2026 report.

  

The shift points to growing interest from developers in hospitality assets as investors look to capitalise on India’s expanding tourism and consumption markets.

 

“India’s hotel investment market has undergone a profound transformation in the first half of this year, marked not just by exceptional volume growth but by a fundamental reshaping of investor profiles and capital flows,” said Gaurav Sharma, managing director, Hotels, India, and senior director, Hotels Capital Markets, Asia, at JLL.

 

Tier II and III cities account for 60% of investments

 

Smaller cities accounted for 60% of hotel investment transaction volumes in H1 2026, while Tier I cities made up the remaining 40%, signalling a shift away from traditional metropolitan markets.

 

Transactions included luxury resorts in Kerala and Coorg, luxury hotels in Agra, Mussoorie and Noida, and upper-upscale properties in Udaipur and Jaipur. The trend also reflects growing investor interest in leisure destinations and cities beyond the established hotel markets.

 

The pipeline of hotel development is following a similar pattern. Of the 29,360 branded hotel keys signed in the first half of 2026, 74% were in Tier II and III markets. These include destinations such as Rishikesh and Jaipur, alongside emerging markets such as Patna and Navi Mumbai.

 

The second half has also seen acquisitions in Ahmedabad, Bengaluru and Pune, as well as strategic land transactions involving 420 acres in the Mumbai Metropolitan Region and 15 acres in Goa. These transactions were collectively valued at approximately $313 million, according to JLL.

 

Distressed assets account for 58% of transaction volumes

 

Transactions linked to the Insolvency and Bankruptcy Code (IBC) generated approximately $288 million, equivalent to 58% of total hotel investment volumes in H1 2026.

 

The contribution of distressed-asset deals highlights the role of insolvency-led acquisitions in driving investment activity. Such transactions can provide buyers with opportunities to acquire existing hotel assets, although outcomes depend on the condition of the properties, liabilities and the cost of repositioning them.

 

Operational hotels accounted for approximately 70% of transaction volumes, while under-construction or non-operational hotels contributed 23%. Land leases made up the balance.

 

By category, luxury hotels accounted for 51% of investment volumes, followed by upscale properties at 35%, upper-upscale hotels at 12% and economy properties at 2%. The figures indicate a concentration of capital in higher-end assets and operational properties.

 

Nearly 30,000 branded hotel keys signed

 

Branded hotel signings reached 29,360 keys in H1 2026, with management contracts accounting for 77% of the total. Franchise agreements contributed 22%, while lease and revenue-share arrangements made up 1%.

 

Greenfield developments accounted for 13,689 keys, reflecting continued investment in new hotel capacity. Signings of large-format hotels with more than 250 keys also increased, with 15 such properties signed in H1 2026, compared with five in the year-ago period.

 

Hotel openings added 5,048 branded keys in the first half, of which 71% were in Tier II and III cities. The upscale segment accounted for 45% of openings, followed by midscale hotels at 28%, economy at 14%, upper-upscale at 8% and luxury at 5%.

 

Full-year investment volumes seen at $1.1 billion

 

JLL expects investment activity to remain strong through the rest of 2026, with full-year transaction volumes projected to reach approximately $1.1 billion. This would represent a 94% increase over the $567 million recorded in 2025.

 

The consultancy expects investors to focus on high-quality branded hotels with strong operating fundamentals in established business and leisure destinations. Platform-level investments could also gain traction as investors seek scale, operating efficiencies and exposure to multiple markets.

  

 

Q2: Why have Tier II and III cities become more attractive than Tier I markets?

 

Tier II and III cities captured 60% of H1 2026 transaction volumes due to better value propositions, strong growth fundamentals in emerging destinations, increasing domestic tourism to experiential leisure locations, robust signing momentum (74% of new branded keys), and successful operational performance in markets like Rishikesh, Patna, Jaipur, Kerala, Coorg, and Udaipur that demonstrate India’s evolving consumption story beyond traditional metro hubs.

 

Q3: What types of hotels are investors targeting?

 

Investors showed strong preference for operational hotels (70% of volumes), Tier II and III cities captured 60% of H1 2026 transaction volumes due to better value propositions, strong growth fundamentals in emerging destinations, increasing domestic tourism to experiential leisure locations, robust signing momentum (74% of new branded keys), and successful operational performance in markets like Rishikesh, Patna, Jaipur, Kerala, Coorg, and Udaipur that demonstrate India’s evolving consumption story beyond traditional metro hubs.

 Branded assets with strong operating fundamentals dominated deal flow, while management contracts represented 77% of new signings. Large-format hotels exceeding 250 keys witnessed particularly strong activity with 15 signings in H1 2026 compared to just five in the prior year period.

 

Q4: What role are IBC transactions playing in the market?

 

IBC-led transactions generated approximately $288 million, representing 58% of H1 2026’s total transaction volume. These distressed-asset opportunities attracted strong investor appetite due to favorable entry valuations, potential for value creation through repositioning, and the ability to acquire institutional-grade assets in a market with limited availability of such properties.

 

Q5: What is the outlook for the remainder of 2026 and beyond?

 

Full-year 2026 transaction volumes are projected at $1.1 billion, representing 94% growth over 2025’s $567 million. The outlook remains positive based on continued institutional capital deployment in platform investments, sustained competitive bidding for limited institutional-grade assets, strong operational fundamentals supporting asset valuations, robust pipeline momentum, and India’s expanding consumption story where emerging destinations and experiential leisure are redefining long-term investment theses for the hospitality sector.