As anyone involved in hotel real estate knows, global factors can greatly influence the transaction environment. And, while we may sometimes feel insulated from what’s going on around us, it’s hard for those factors not to affect us in some way. So while the Canadian economy has been doing relatively well in recent years, and the real-estate market in several key Canadian cities is off the charts, one need only look at what’s going on south of the border with the recent election of Donald Trump — and the subsequent policies he’s tried to enact — and wonder how those initiatives will impact Canadian business.
According to a report from Trepp, CRE Research, “Major gateway markets across the U.S. received record-high tourism levels throughout 2016, exceeding the low expectations set because of geo-political issues and economic volatility.” Surprisingly, tourism and leisure spending is forecast to rise even more in 2017. In the U.S. market last year, the lodging sector posted solid overall performance, but there are concerns whether this can repeat itself given the hurdles of new-supply production, the rise of alternative accommodations and the softening in property values and income growth.”
Looking ahead at 2017, JLL expects U.S. hotel transactions to remain flat at a forecast volume of $29 to $31 billion. There’s also talk the REIT sector is expected to command a strong buyer share again this year, with a comeback likely after lodging/resort REITs posted a 24.3 per cent total return.
In Canada, according to a survey by Ernst & Young, 69 per cent of respondents felt the depressed oil markets were currently having the greatest impact on their businesses. Still, despite this, the national outlook for the market remains positive, with more than 75 per cent of respondents indicating they plan to explore purchasing or developing new properties in 2017.
With the exception of Calgary, the general consensus was that markets in Canada will remain strong under moderate supply growth as demand continues to increase and RevPAR continues on an upward trend. In Canada, Toronto and the GTA markets seem to be most likely to grow.
Although foreign inbound capital has made headlines in the past two years, the domestic attitude towards transactions remains robust. However, the report also states foreign buyers may be pushing up the price of existing stock. While the weak Canadian dollar may help operational revenue, it can also have an adverse effect on the ability of Canadian companies to buy hotels. But it’s also important to note that the scarcity of land and prohibitive construction costs may be forcing owners to remain competitive acquirers of existing properties rather than developers of new ones.
Finally, according to this report, the hotel market is likely two to three years away from being at peak.