India’s hospitality sector is quietly undergoing a major shift – one that may redefine how we measure opportunity, innovation, and growth in the coming decade. While the spotlight has long remained on metros and tier-1 cities, a powerful undercurrent is emerging across tier-3 cities, silently transforming them into the next big frontier for hospitality development.

These destinations, often perceived as peripheral or seasonal, are now commanding attention for their consistent footfalls, improving infrastructure, and rising investor interest. A convergence of spiritual tourism, grassroots entrepreneurship, regional connectivity, and localized experiences is giving rise to a new hospitality landscape. These smaller cities are not merely spillovers from crowded metros — they represent independent and high-potential ecosystems. As the industry prepares for $1 billion in investments by 2028, hospitality professionals must broaden their vision and refine their strategy to align with this evolving reality. The next growth story is not loud – it’s quiet, authentic, and rooted deep within India’s emerging heartlands.

Well-defined investment corridors

Tier 3 cities, particularly those rooted in religious and spiritual heritage, are fast emerging as high-opportunity zones for the hospitality industry. Historically driven by sentiment and tradition, these pilgrimage destinations now present a compelling business case for sustained investment. Spiritual tourism accounts for more than 60% of domestic travel in India. But beyond sheer volume, it’s the reliability of this segment that is drawing the industry’s attention.

With a rise in expectations for hygiene, comfort, and curated experiences, the hospitality needs of pilgrims have evolved. Visitors are increasingly seeking spaces that offer cultural immersion while providing modern amenities. This shift is driving demand for well-planned accommodations, wellness retreats, and heritage-centric stays.

What was once dismissed as purely seasonal or low-yield is now being re-evaluated. Pilgrimage pathways are turning into well-defined investment corridors, with hospitality playing a key role in amplifying local economies while enriching visitor experiences.

Local entrepreneurs redefining guest experiences

In contrast to traditional models dominated by large players, this new wave is deeply rooted in community involvement. Locals are launching homestays, cultural lodges, eco-cafés, and guided tour services offering travelers a unique, immersive experience that’s hard to replicate in conventional hotel chains.

This localized approach delivers more than just accommodation. It offers authenticity, warmth, and cultural depth. These hosts bring an intuitive understanding of the region’s history, customs, and narratives providing guests with meaningful connections that go beyond tourism.

Economically, this movement stimulates circular growth. Local entrepreneurs hire residents, source materials regionally, and support artisans and farmers. Socially, it empowers communities and fosters pride in local heritage. The industry must now actively support this trend through training, microfinance, and access to digital tools. Supporting grassroots hospitality is not charity; it’s an investment in a scalable, sustainable, and deeply resonant hospitality future.

Last-mile connectivity reshaping hotel viability in smaller cities

The success of hospitality in tier-3 cities is increasingly tied to improvements in physical and digital infrastructure. What once held back investment such as poor road conditions, limited public transport, and unreliable utilities, are rapidly changing. Government efforts to enhance regional connectivity, from regional airports to expressways and smart city initiatives, are dramatically transforming access to these locations.

Last-mile connectivity is no longer a bottleneck but a catalyst. The expansion of highway networks and regional aviation schemes has significantly reduced travel time to remote destinations, making weekend getaways and spiritual retreats more feasible. Additionally, digital connectivity through UPI payments, high-speed internet, and cloud-based booking platforms has enabled hospitality businesses in these regions to function with greater efficiency and visibility.

As a result, the risk profile of tier-3 investments is changing. They are now seen as early-mover opportunities with rising property values and strong guest retention. For the hospitality industry, factoring in infrastructure readiness is no longer optional; it is central to long-term planning and ROI analysis.

Creating new travel circuits

Today’s traveler seeks more than accommodation – they crave stories, local flavors, and emotionally rich experiences. This shift is spurring the rise of experience-led clusters, particularly in tier-3 cities. These towns, rich in folklore, craftsmanship, culinary traditions, and scenic diversity, offer untapped potential to develop curated tourism circuits.

Rather than functioning in isolation, these destinations are increasingly interconnected. A spiritual town may be paired with a nearby artisanal village, a natural park, or a wellness retreat. Together, they form a compelling multi-stop itinerary that extends visitor stays and deepens engagement. From storytelling walks and cultural workshops to food trails and spiritual detox programs, tier-3 cities are crafting new narratives that resonate with domestic and international tourists alike.

This presents an opportunity for the hospitality sector to move beyond beds and meals — toward experiences that co-create demand. The success of hospitality in these clusters depends on building partnerships with local artists, farmers, and storytellers to deliver value far beyond room tariffs.

Hospitality metrics evolving for emerging markets

As hospitality deepens its presence in tier 3 cities, traditional metrics like RevPAR (Revenue per Available Room) and ADR (Average Daily Rate) are no longer sufficient to evaluate success. These cities operate on different dynamics, and hospitality performance must be assessed through a broader, more nuanced lens.

One emerging metric is community impact measuring how a property contributes to local employment, skills development, and economic inclusion. Another is seasonal adaptability, where flexible operational models account for peak pilgrimage months, festivals, or climate patterns. Guest sentiment and experiential value captured through feedback and return visits are also becoming crucial indicators.

Additionally, hybrid usage models such as combining hospitality spaces with coworking, wellness, or event hosting help maximize asset utility. Properties in tier 3-cities often benefit from lower fixed costs and lean staffing, which enhance operating margins despite modest room rates. In this new paradigm, success lies in agility, local alignment, and long-term community value – not just high average rates.

The emergence of tier-3 cities as hospitality hotspots is not a coincidence; it is a reflection of deeper shifts in how India travels, invests, and experiences its own culture. These cities are offering a blend of tradition, opportunity, and future-readiness that makes them far more than satellite markets. They are instead becoming strategic growth centers.

For the industry, this means embracing a more inclusive and decentralized growth strategy. It requires investing not just in properties but in people, stories, infrastructure, and communities. As hospitality stakeholders, we must look beyond legacy models and begin aligning with the realities of grassroots entrepreneurship, digital integration, and experience-led demand.

The growth may be quieter in these cities, but it is more resilient, more authentic, and more transformational.

The writer is Head of Corporate Communication, Eros Group. – editor@nrifocus.com