
Hotels are extremely cyclical in nature and unlike the previous cycles, the current decline is driven by demand and not supply, and our experience says that most hotels will recover their cashflows quickly. In our India Hotels Outlook Report, August 2020, we anticipate Occupancy & ADR to reach pre-COVID levels by 2022 & 2023, respectively. We also anticipate that the shift in cost structures due to COVID will continue to remain, which combined with the return in performance in 2023 will result in better yields for hotels, by which time we expect cap rate compression to occur.
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Additionally, compared to the other methodologies, DCF also considers the micro and macro-economic intricacies as it acknowledges the fact that the market conditions may not be great in the initial years but would recover strongly post the pandemic. The DCF methodology also helps us understand that hotels are extremely cyclical in nature and can generate yields higher that other asset classes once they recover. So, while presenting a future scenario the DCF method recommends that hoteliers should adopt a hold and buy policy as the market will recover soon.
India Hotel Values

Source: HVS Projections, Indexed to 2019
The HVS Hotel Valuation Index suggests that hotel valuations in India will reach the pre-COVID levels by 2023, making this the best time to buy and invest in hotels.
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