IMAGE: ELISE HASSEY
IN JANUARY 2025 the management of a five-star hotel in Kathmandu faced a choice familiar across the valley: lower prices or watch competitors fill the rooms first. Rooms that had been priced at between Rs15,000 and Rs20,000 a night were repriced at Rs8,000 to Rs10,000, with breakfast, lunch and dinner included. “Why would guests choose mid-tier hotels when they can stay in five-star luxury for the same price?” one hotel operator told Tourism Info Nepal (which promotes Nepal’s tourism), framing the question as a competitive edge. It is also, viewed from a different angle, a description of an industry in distress.
Nepal’s hospitality sector has spent the past five years building ahead of demand. In Kathmandu alone, five luxury hotels bearing internationally recognised names—Hilton, Holiday Inn, Lemon Tree Premier, Mercure and Royal Tulip—commenced operations in 2024 and early 2025, bringing the total number of five-star properties in the capital to at least 18. Marriott International, which already operates two Kathmandu properties, signed an agreement for a new hotel in Pokhara. According to the Hotel Association of Nepal, the country’s combined hotel infrastructure can now comfortably accommodate more than 3.6m visitors a year. Nepal received some 1.15m foreign tourists in 2025. The difference between those numbers is the hospitality sector’s defining problem.
Five-star occupancy in Kathmandu fell to an average of 32% in January 2025 and dropped further, to some 20%, in the weeks following Christmas and New Year as the seasonal wave of foreign arrivals subsided. Even in Bagmati Province, which records the highest hotel investment density in Nepal, the average annual occupancy rate for the fiscal year 2024-25 reached only 57%: a figure that would concern lenders in any market. Hospitality analysts benchmark 60% as the threshold for profitability in most operating models. At 57% on average, with troughs well below 45% in slow months and the five-star segment anchored at 32% in January, a big portion of Nepal’s luxury room stock is consistently losing money or servicing debt at rates the revenue does not cover.
The assumed buyer who did not materialise is, above all, Chinese. Pre-pandemic, China was Nepal’s second-largest source of international arrivals and its most promising growth market, with direct air connections and a rapidly expanding upper-middle class seeking Himalayan adventure and Buddhist pilgrimage tourism. Recovery has been slow: China sent 78,929 tourists to Nepal in the first ten months of 2025. India, now Nepal’s largest source market at 243,350 arrivals in the same period, contributes overwhelmingly budget and pilgrimage travelers rather than the luxury guests who fill five-star rooms at full-rack rates. The industry built for one buyer and is sustained by another.
Pokhara crystallises the miscalculation. The city’s international airport, opened in 2023, was financed by a $215.96m loan from China’s Export-Import Bank and designed to serve as a western Nepal gateway, routing international tourists directly to the Annapurna Circuit, Mustang and Phewa Lake without transiting Kathmandu. As of May 2026, not a single regular international airline operates scheduled flights from Pokhara. Himalayan Airlines launched a Pokhara-Lhasa service in March 2025 and shut it down within a year, citing low passenger numbers.
The government’s policy document for fiscal year 2026-27 states the administration will “initiate diplomatic efforts to attract international airline operators”: phrasing that marks the effort as still aspirational, three and a half years after inauguration. Loan repayments to Beijing are expected to begin this year. A parliamentary sub-committee found serious corruption in the project’s procurement in April 2025; fresh cases were filed in May 2026. The airport built to bring buyers to Pokhara’s hotels has brought mainly investigators.
The September 2025 protests added an acute shock to a chronic problem. Around 30 hotels were directly damaged, including properties bearing the Hilton, Hyatt, Barahi and Sarowar brands. The Hotel Association of Nepal, a lobby group, estimated industry-wide losses at Rs25bn with 20,000 workers temporarily displaced. October brought a modest rebound—128,443 arrivals, a 3.3% increase over the same month the year before—but cancellations persisted and investor confidence stayed depressed.
Banks are adjusting. The Nepal Rastra Bank’s October 2025 data showed that credit flows from banks to the service sector, which includes hotels, contracted by 0.3% in the first two months of the current fiscal year, even as lending to manufacturing and construction grew modestly. Non-performing loans in the hospitality sector are rising; lenders are describing their new approach to hotel financing as selective. The sector’s total fixed assets stand at Rs543bn. Nepal Investment Mega Bank alone holds Rs22.98bn in tourism exposure and Prabhu Bank Rs21.57bn. The risks sitting on those balance sheets are not hypothetical.
The price war is the mechanism through which oversupply transmits into systemic damage. When five-star rooms trade at eight thousand rupees inclusive of meals, mid-tier hotels cannot compete at any price point that covers costs. Revenue per available room falls across the sector. Debt service ratios that assumed average daily rates two to three times higher than current market rates become unsustainable. Marriott will survive a difficult few years in Kathmandu; the family-financed guesthouse in Thamel, or the provincial hotel built on a bank loan in Lumbini where occupancy has yet to clear 35% even during peak season, may not. ■
