IHCL, ITC, Lemon Tree expand into tier-III

Listed hospitality companies are aggressively expanding into tier-III and IV locations by rapidly signing hotel management contracts in obscure micro-markets across India, from Barapani to Maniyagarh Hills. This push is driven by booming domestic tourism and a strategy to increase management fee income as development in larger cities peaks.

Recent signings illustrate the breadth of this push. ITC Hotels added a Storii property at Amchong Tea Estate near Guwahati and a Welcomhotel in Salasar, Rajasthan. Taj parent Indian Hotels Company Ltd (IHCL) secured deals in Jawai and Bharatpur in Rajasthan, Sindhudurg in Maharashtra, and Barapani, Meghalaya. Lemon Tree Hotels announced properties in Omkareshwar and Chitrakoot in Madhya Pradesh, Khurpatal in Uttarakhand, Barog in Himachal Pradesh, and Gorakhpur in Uttar Pradesh.

Strategy Shift: From Rooms to Reach

Scale is now less about room count and more about brand and distribution breadth, according to industry executives. Oberoi Hotels parent EIH is taking its brands to destination-led markets, with projects including Makaibari Tea Estate in West Bengal, Kabini and Hampi in Karnataka, and Rajgarh Palace atop Maniyagarh Hills in Madhya Pradesh. Consultants note the expansion is not merely about smaller cities, but about identifying pockets of demand that can support branded accommodation built around a specific travel proposition.

Dimitris Manikis, president for EMEA at Wyndham Hotels & Resorts, highlighted the rapid pace of change, noting that a tier-III city can become a tier-II market within months as new airports and highways come in. He pointed to an infrastructure pipeline of 27 airports being developed, with another 50 planned.

Fueling the Expansion: Domestic Demand

India's domestic travel market is the core engine for this growth. The World Travel & Tourism Council estimates domestic visitor spending will reach $203 billion in 2025, accounting for 86% of total travel and tourism spending. Consultancy HVS Anarock, in a January 2026 review, stated domestic tourism remained the sector's strongest pillar, driven by short breaks, drive-to leisure travel, pilgrimages, weddings, and social celebrations in tier-II and III cities.

For hotel management companies, this trend offers a capital-light path to expand via management contracts without owning real estate. Rattan Keswani, deputy managing director of Lemon Tree Hotels, said portfolio breadth is now becoming as important as the hotel or room count, describing the strategy as strengthening and carpet-bombing locations. Demand in smaller locations is often generated locally through weddings, pilgrimages, regional trade, and family occasions.

The Network Effect and Portfolio Play

A key advantage for large chains is the network effect. Keswani explained that when one recognized brand enters a market, others often follow because owners realize they cannot compete independently and consumers trust brands. The chain's distribution network itself becomes an asset, as a guest searching for a hotel in one emerging destination can become a customer elsewhere in the network.

This makes offering a portfolio of brands crucial. A company with multiple brands can present an owner with different price points and formats, adding another brand as the destination matures. Prashant Biyani, vice president and hospitality analyst at Elara Capital, said larger hotel companies are not looking to leave any empty spaces in their hotel portfolios, citing IHCL's revival of the Gateway brand and expansion of Ginger as examples of portfolio maximization.

The strategy is visible in the expansion numbers. IHCL ended Q1 FY27 with 645 hotels, including 263 in its pipeline. Its management fee income grew 26% year-on-year to ₹168 crore. ITC Hotels reported its managed portfolio crossed 200 hotels, with management fees up 35% year-on-year, aided by leisure location performance. EIH is also heavily reliant on management contracts, announcing an Oberoi resort at Makaibari Tea Estate and a partnership to develop 20 luxury lifestyle resorts in locations like Coorg, Kabini, and Hampi.

Other chains are following suit. Royal Orchid is exploring micro-locations like Kevadia in Gujarat, while Accor is taking its Novotel brand to Sambalpur, Odisha, with a 120-room property slated for 2031. The expansion race is on, with every major player aiming to plant their flag in India's emerging travel destinations.