Nepal’s hospitality is undergoing a construction and investment boom. From the busy streets of Kathmandu to the serene valleys of Lumbini and Pokhara, hotels, many bearing globally recognized brand names, are rising at a rapid pace. However, tourist numbers have not grown at the same pace, raising questions about the sector’s long-term sustainability.

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A Surge in Luxury Hotels

In the past year alone, Kathmandu Valley has seen the launch of five new luxury five-star hotels, including internationally renowned names such as Hilton, Holiday Inn, Lemon Tree Premier, Mercure and Royal Tulip. These additions bring the total number of five-star properties in the capital to 18. Many of these hotels are operated by global hospitality giants like Marriott, Hyatt, Taj, Ramada and Dusit Thani.

Building on the success of Marriott Kathmandu and Fairfield by Marriott, Marriott International recently signed an agreement for a new property in Pokhara. In early October 2024, Annapurna Square Pvt Ltd—a special-purpose vehicle set up to redevelop the iconic Hotel Annapurna—signed a management agreement with India’s ITC Group to operate the property under the WelcomHotel by ITC brand.

Outside the capital, investments are gaining momentum. Resorts and tourist-standard hotels are opening NewBiz Report Hotel construction boom runs up against slow arrivals and infrastructure bottlenecks. across Pokhara, Chitwan, Butwal, Biratnagar, Itahari and Lumbini, spurred by expectations of a tourism rebound. According to Upaul Majumdar, Head of Practice – Tourism for South Asia at Dolma Consulting UK, this marks the first wave of brand entry. “As these brands establish a foothold in Kathmandu, they promote Nepal through global marketing and booking platforms—generating demand not just for their hotels, but for the country as a whole,” he explained.

With demand for branded experiences rising in secondary destinations, Majumdar said hotel development is ramping up in places like Bhairahawa, Sauraha and various provincial capitals. “Several projects are already underway, and I expect a surge in franchise openings over the next two to three years,” he added.

Investment Outpaces Demand

Despite the boom, the data paints a more sobering picture. According to the Hotel Association of Nepal (HAN), the country’s current infrastructure can comfortably accommodate over 3.6 million visitors annually. But in 2024, Nepal received only around 1.14 million foreign tourists—a modest recovery from pandemic lows but still far below the hospitality sector’s growing capacity.

Occupancy rates are alarmingly low. In January 2025, Kathmandu’s five-star hotels reported an average room occupancy of just 32%. Hotels in Lumbini struggled to cross 35% even during peak season.

According to the National Hotel and Restaurant Survey 2080 BS, published by the National Statistics Office (NSO), Nepal has more than 142,000 hospitality establishments. However, only 28.4% accessed bank loans. Most rely on private or family capital. However, in the formal segment—particularly star-rated hotels and branded restaurants—bank lending has surged in recent years.

Banks appear comfortable lending to the sector, particularly for projects backed by high-value real estate. Such tangible assets offer collateral even when loans stretch over decades. As of mid-April, commercial banks had invested Rs 217 billion in tourism, with development banks and finance companies adding Rs 28 billion and Rs 4 billion, respectively.

The cost of building a five-star hotel room is typically in the range of Rs 10-15 million. Some projects like the under-construction Sheraton in Thamel carry price tags exceeding Rs 12 billion. But despite these enormous investments, many hoteliers report operating at a loss, citing high interest payments, low occupancy and mounting operational expenses.

Why the Rush to Build?

What is driving the construction boom then? Many point to the long-term potential of Nepal’s tourism sector. A globally branded hotel typically requires investment of Rs 1 billion to Rs 3.5 billion, depending on scale and location. Industry benchmarks suggest such properties can break even within 10 to 12 years, excluding land costs, if backed by sound business models. Budget international hotels with 60 to 70 rooms can cost Rs 300-400 million.

Regions that have become the hotspots for hotel development include Bhairahawa, Butwal, Lumbini, Biratnagar, Jhapa, Birgunj, Dhangadhi and Nepalgunj, as well as Pokhara and Chitwan. “Many international-brand hotel projects are underway in these areas, reflecting rising investor confidence and long-term potential,” said Majumdar.

Many investors are betting on the growing outbound markets of India and China. With over 30 million Indians and 120 million Chinese traveling abroad annually, even a small fraction choosing Nepal would significantly boost arrivals.

Hotel development also offers prestige and visibility for business groups. High-end hotels frequently host events, conferences and social functions, helping these groups build brand influence in a competitive landscape.

However, there are concerns about over-invoicing, land speculation and financial maneuvering disguised as infrastructure development. Some investors reportedly inflate costs to secure large loans and regulatory approvals, only to exit later via Initial Public Offerings (IPOs).

Structural Bottlenecks

Despite investor enthusiasm, the sector faces serious bottlenecks. Tribhuvan International Airport remains overcrowded and inefficient, while new airports in Pokhara and Bhairahawa are unused. Poor road connectivity, inconsistent air safety oversight and high travel costs continue to deter potential visitors.

Government tourism campaigns have struggled to deliver anticipated results. The ambitious Visit Nepal Year 2020 campaign collapsed with the COVID-19 pandemic, and the proposed “Tourism Decade” campaign is viewed with skepticism by many in the industry.

Stakeholders say tourism growth will not match the sector’s rapid expansion if it is not supported by aggressive international marketing and improved infrastructure.

Management Models and Financial Risks

Most international hotel chains in Nepal operate under management contracts—offering brand value and operational expertise but no direct capital. In return, they typically charge around 3% of net earnings—a fixed fee that can strain local investors during downturns.

Alternatively, some properties operate under franchise models which allow greater operational control. However, they are required to pay royalty fees and comply with the brand guidelines.

Hoteliers are naturally concerned about returns on investment. Desh Bandhu Basnet, owner of Mercure Kathmandu, warns that the capital-intensive nature of luxury hotel development, combined with slow demand recovery, could affect properties lacking strong brand support or sound financial planning. “Hotels that overestimated short-term growth and took aggressive loans could face distress,” he added.

Boom or Bust?

The hotel industry is currently flush with new capital, glittering properties and international recognition. But behind the shine lies a precarious reality: room occupancy is low, returns are elusive and risks are rising. Without strategic intervention like addressing infrastructure, marketing and policy support, Nepal’s hotel boom risks becoming a cautionary tale.

A coordinated effort between the government, investors and the tourism sector is essential to convert infrastructure growth into sustainable, long value. Unless demand catches up, Nepal’s gleaming hotels could become monuments to the ambition outpacing reality.

(This report was originally published in    June 2025 issue    of New Business Age Magazine.)