Sri Lanka’s hotels have kept revenue per available room growing at a double-digit pace through 2025 and the first seven months of 2026, according to a market review published by consultancy Hotelivate on 7 October. The same review finds that tourism earnings are not keeping up with visitor numbers, and that top-tier hotels are still priced well below regional competitors.

The review, Sri Lanka: An Island of Opportunities, draws on CoStar hotel data, Sri Lanka Ministry of Tourism arrivals, and World Bank and central bank statistics.

Arrivals have passed the old peak

Sri Lanka received 2,362,521 international visitors in 2025, above the previous record of 2,333,796 set in 2018. January and February 2026 ran ahead of both years, but arrivals weakened in March and April as disruption to Middle Eastern aviation networks affected travel flows. By the end of August 2026 the country had received about 1.54 million visitors, slightly below the same period of 2025.

India is the largest source market, with 531,511 arrivals in 2025, up from 416,974 in 2024 and just under a quarter of the total. The United Kingdom followed with 212,277, then Russia with 186,580, Germany with 147,966 and China with 132,035. Chinese arrivals remain about half the 265,965 recorded in 2018. Hotelivate says Russian demand softened during 2026.

Hotel performance, and the earnings gap

Hotelivate says demand growth has exceeded supply growth since 2024, lifting occupancy and RevPAR. The steepest gains came in the initial rebound, when room rates rose sharply. Rate growth has since moderated while occupancy has continued to improve. Its CoStar chart shows occupancy rising each year from 2023 and standing above 60% for 2026 to August. The article does not publish the exact occupancy, ADR or RevPAR values behind the chart.

On pricing, the review says upper upscale and luxury hotels in Sri Lanka are in many cases around 15% to 20% cheaper than comparable hotels in Thailand, Indonesia and Vietnam.

The caution is on spending. Arrivals rose more than 15% in 2025 but tourism earnings grew much more slowly, and earnings declined in the first seven months of 2026 while arrivals were broadly stable. Hotelivate attributes part of the gap to changes in measurement methodology and part to a shift in source markets with different lengths of stay and spending habits. It does not give the earnings figures.

Supply and the wider economy

More than half of Sri Lanka’s branded room stock sits in the upscale segment or above, which Hotelivate calls an inverted pyramid compared with many regional markets. Outside Colombo and a few leisure destinations, most hotels are independently owned and operated. Colombo has recently absorbed two hotels within the City of Dreams development, which the review says has increased competition.

Real GDP grew 5.0% in both 2024 and 2025. Forecasts for 2026 from the IMF, World Bank and Asian Development Bank range from 3.0% to 4.0%, and Hotelivate notes that inflation has picked up, the rupee has weakened against the US dollar and the current account has returned to deficit. The review gives no pipeline count, transaction data or forecasts for hotel performance.

THD’s reading

The following is THD analysis, not Hotelivate’s.

  • The opening for brands is below upscale. With branded supply concentrated at the top and India now sending more than half a million visitors a year, midscale and upper midscale products aimed at short-haul Indian travellers look under-served. Indian hotel groups with loyalty bases at home are the obvious candidates.
  • A 15% to 20% rate discount is an opportunity only if spend follows. Earnings falling while arrivals hold suggests the visitor mix is moving towards shorter, cheaper trips. Owners of luxury assets should not assume the rate gap with Thailand or Vietnam will close on its own.
  • Currency cuts both ways. Hotel performance is reported in rupees, and the rupee has weakened in 2026. Foreign investors should restate RevPAR growth in US dollars before using it in underwriting.
  • Independent owners outside Colombo are conversion targets. Hotelivate’s point about limited access to distribution systems and loyalty programmes describes the case that franchise and soft-brand operators will make to them.