The guiding principle never changes when it comes to selecting a site for a new hotel property: “location, location, location,” says Stephen Darling, an independent Vancouver-based corporate director and hospitality consultant. “If the location isn’t right, a mediocre or marginal location isn’t going to be fixed by a nice hotel because, ultimately, the location isn’t going to change.”
What has evolved, however, are the myriad factors hotel companies and development firms need to consider when looking for that perfect site. Today, finding the best location for a new property development requires a look at both the old and new fundamentals.
Mark Sparrow, executive vice-president of Toronto-based JLL Hotels & Hospitality Group, says the kind of hotel the developer wants to build is becoming an increasingly important question at the outset. “When groups are looking at building a property, they’re starting to look at the type of brand they want to have,” he says. “For example, we’re seeing a strong push in the entertainment and fashion districts in downtown Toronto with boutique-hotel concepts coming into the market. They really try to take advantage of local neighbourhoods and the vast array of hot restaurant concepts, bars [and] nightclubs like amenities that both leisure and corporate travellers are looking for. So, we are starting to see what kind of hotel they want to build being a first step in site selection.” From there, a supply-and-demand analysis will determine if there’s enough demand in the market to support a new hotel development, which would typically be done through a feasibility study. “One of the top factors would be who is going to be putting their heads in the beds,” says Sparrow. “In terms of demand generators, they would look at the local business area, tourist attractions, industrial parks, universities, airports and major throughways, in terms of traffic.”
Rich Eichler, a Calgary-based hotel-and-tourism consultant, agrees that proximity to demand generators is key, along with visibility, proximity to major transportation quarters and potential for growth in the surrounding area of the site. Eicher says number-5 on his list — access to the site — would have been much higher five or 10 years ago. “Access has changed a lot because of GPS,” he says. “You might see a hotel from a highway, decide to go there, and then have all kinds of difficult access. With GPS giving precise directions on how to get there, guests don’t have to worry about it as much.” Visibility is also falling further down the list as consumers are using mobile devices to map their locations, says Carrie Russell, partner and managing director at HVS’s Vancouver office. “Visibility used to be really important, especially for a walk-in location or a highway location,” she says. “But, nowadays, people are booking on their mobile devices, punching the hotel name into their GPS and being guided by Google to get there. So, it’s less important to be visible or accessible than it used to be.”
Along with the rise of technology, changing traveller demands may necessitate a rethink of the site-selection checklist. Today, business and leisure travellers alike are looking to experience vibrant neighbourhoods and districts. “Airbnb has taught this through their tagline, ‘live like a local,’” says Darling. “There is absolutely a desire, especially amongst the younger leisure and business travellers, to stay in places where they can walk out and have a coffee and a croissant on the sidewalk, and feel like they’re living in the community. It’s very important and it’s going to become increasingly important as we move forward.”
Sparrow is also finding that developers are increasingly focusing on what the guest is looking for. “The leisure traveller is moving towards lifestyle and boutique-style properties…And that can determine where you’re going to be located because millennials do not want to stay at an airport hotel,” says Sparrow. “They’ll pay the difference to stay downtown, close to entertainment or restaurants. So, looking at the demographic of your clientele is becoming more of a factor.”
While evolving traveller needs are adding new considerations, site specification factors remain fairly standard. They include whether the site is serviced in terms of utilities, environmental factors and zoning; this is typically where problems are uncovered. For example, on the environmental front, there could be issues such as poor soil conditions or the land beneath the site isn’t conducive to supporting a hotel because it could be marshlands, explains Eichler.
Zoning and permitted-use must also be reviewed, and this is where it can get complicated. “Sometimes the properties aren’t ready for building permits or they’re not serviced correctly,” says Sparrow. “So, there’s a significant amount of time required by the investor to purchase the land, go through rezoning, building permits and servicing before they can actually start hotel construction, which limits their ability to make money.” Eicher adds that developers have to determine if it’s going to be cumbersome to change the zoning if a hotel is not a permitted use. “You can try to change the zoning, but it may take a year or two to change,” he says. And, even if a site permits a hotel development, there could be architectural restrictions such as height.
One big hurdle in major markets is the scarcity of sites, leading many hotels to become part of mixed-use developments (see p. 47). However, even this arrangement produces challenges. “One of the common issues that comes up is the relationship between the different users can sometimes be complicated,” says Sparrow. “Getting the right balancing act to make a sustainable project on a long-term basis can be challenging.”
Darling says some hotel companies will resist or avoid mixed-use developments because they don’t want to share areas such as mechanical facilities, loading docks and recycling. “But in actuality, it can be done very advantageously to improve the viability of all components of the mixed use,” he says. “It can lower the operating expenses for all of the constituents, whether they’re retail tenants, residential owners or a hotel…And, when a developer is diversifying, it gives lenders a much greater comfort for an overall project.”
In the hotel industry, there’s an age-old question of new hotel build or conversion. Sparrow says, in the past, conversion opportunities have been more prominent with developers because of pricing. But now, it’s becoming feasible to do a new development as opposed to conversion. “Being able to buy a hotel at well below replacement cost has been at the forefront for the last five or 10 years,” he says. With pricing the way it is right now, which we see at peak level, it is now steering toward new development.” So, where are the hot spots for new development in Canada? HVS’s Russell says there’s no question the development trend has moved toward Eastern Canada. In 2017, activity in terms of development was up 25-per-cent in Eastern Canada and flat or down just slightly in Western Canada in 2017, she explains. “We’re seeing a lot more activity in Montreal, the Greater Toronto Area and Ottawa.”
Russell believes as oil prices start to firm up, more development will come back to Western markets such as Edmonton and Calgary. “But it’s been cooler in those markets for the last few years,” she says.
Developers and hotel owners are also looking at resort areas more heavily now because they’ve had strong RevPAR performance, adds Russell. “You can’t develop in the mountain parks of Banff, but people are looking in Canmore to be close to playing off the effect of Banff,” she says.
Eichler agrees that resort areas have been the hottest development spots over the past couple years. “That’s mainly because our Canadian dollar has been low, which brings in a lot of Americans and international travellers,” he says. Toronto, Vancouver and Montreal are also hot spots, says Eichler, but it’s an expensive venture to build a hotel in major markets. So, the suburban areas around those cities will continue to grow. “There’s still lots of growth happening in Mississauga and Brampton, [Ont.] because the downtown areas of cities such as Toronto and Vancouver are pretty much land locked,” says Eicher. “There’s not as much new development there compared to the suburban markets of those cities.”
Written by Rebecca Harris