With hotel operating performance and investment metrics at an all-time high, domestic and foreign investors continue to show strong interest in acquiring hotels in Canada, as well as pursuing development opportunities in the suburbs of Canada’s largest cities. According to a recent report from the CBRE — 2019 Canadian Hotels Outlook Report — the new supply of hotel product will increase by two per cent, marking the single-highest year of supply growth in the Canadian hotel market since the financial crisis in 2008.

With strong tourism and business travel, CBRE expects that RevPAR will rise four per cent in 2019. Toronto, in particular, continues to be a bastion of stability and economic vibrancy, which is producing robust business activity — namely the lowest office vacancy in North America — and bolstering confidence in the hotel market. According to Bill Stone, EVP of CBRE Hotels, there are a number of factors, challenges and opportunities ahead.

“Canadian hotel operating performance and investment metrics have never been stronger and all indications point to investment volume matching, if not exceeding, historical averages in 2019,” says Stone. “The only factors that cause significant shifts in the hotel market are either geopolitical events — such as 9/11 and the global financial crisis — or the delivery of new hotel supply, which is what we are predicting we will see this year. New supply is a good challenge to have as it reflects the strength of the market and Canada’s ability to compete on the world stage.”

Hotel supply will be increasingly constrained in the country’s major markets as development costs rise faster than RevPAR growth in many markets and the further widening of spreads in the debt markets. Alberta continues to experience challenges in the wake of the province’s economic downturn however, Edmonton and Calgary are starting to develop and supply and demand growth in Alberta are projected at 0.7 per cent and one per cent respectively. According to Stone, the lack of availability of building sites is causing a problem for some.

“Hotel developers have a hard time competing with residential developers to acquire land,” Stone says. “There’s a limited number of sites available, then pricing of the land [and construction costs] is another part of that. Even though we’re operating at great levels, it’s still difficult to make the numbers [make sense].”

Due to higher costs of land development, price-per-room and construction costs, Stone adds many developers are realizing hotel investment and ownership is a long-term game (a 40- to 50-year investment); the chances of seeing a significant return in five years is unlikely. All-in, development costs range from about $150,000 for economy hotels to well-in excess of $1 million for luxury assets. However, the lack of supply means hotel groups currently have pricing power, thanks largely to record RevPAR and occupancy rates.

“If I’m an existing operator, I’m loving [the state of things] because I’ve never made this much money in my hotel in my life,” Stone says. “The bottom-line earnings are at record levels so, if you’re an owner, you’re earning far better than you ever have. [For owners/investors], the Achilles heel of the industry has been that you have to sell your room inventory every night and if you don’t, you’ll never sell it against,” he adds. “Now the opportunity, with these kinds of occupancy rates, is you get to re-price your inventory every night. The cash returns you’re getting on hotels today are better than a lot of other real-estate classes, so from a longer-term perspective, it’s a great time for them.”


For hotel groups with relatively newer brands, marketing and messaging becomes more important — especially in major urban centres such as Toronto, Vancouver and Montreal. For example, with almost one-quarter to one-third of hotel brands in downtown Toronto owned by Marriott International, other hotel groups and developers must offer services and amenities that appeal to a younger guest audience in order to stand out. With 30 brands in its collection — full-service, economy, upper-midscale and luxury hotels — Marriott and other large companies have the power to rebrand and leverage resources to become major players in urban markets. But for others, focusing on secondary and tertiary markets present a new opportunity for brand growth and profitability.

Hilton recently opened a dual-branded Homewood Suites and Garden Inn in downtown Ottawa (346 rooms), while Marriott opened a 390-room Residence Inn in downtown Calgary and a 154-room Fairfield by Marriott Hotel in downtown Montreal. Toronto, Halifax and Edmonton are all due to have similar properties open over the next few months.

Paul Loehr, VP of Development at Marriott International, says markets east of Toronto and elsewhere in the GTA are providing several opportunities for growth, along with markets in and around the Vancouver area; suburbs of Montreal; Banff, Alta; Kitchener-Waterloo, Ont.; Halifax; Ottawa; and other markets that attract tourism and international business.

“One of [the] focuses is to go into the secondary and tertiary markets and grow other development partners where land is not as expensive,” Loehr says. “We have Fairfield Inn and TownePlace Suites brands in the upper-midscale space that are great brands for us to grow in those markets.”

Hotel developers are also focusing on mixed-use projects, working in tandem with residential developers to ease the costs of labour and development. With many local jurisdictions requiring developers to include a non-residential use in their building, opportunities exist for hotel and residential developers to join forces. For example, the Thompson Hotel in Toronto (now under the Hyatt umbrella) allows its condo residents to enjoy features of the hotel. Hyatt has also announced a new Andaz hotel set to open in 2022 at the intersection of Toronto’s Yonge and Bloor streets. The new Andaz Toronto-Yorkville will occupy floors four through 16 of the tower, offering more than 15 luxury suites, more than 12,000 sq. ft. of event and conference space, food-and-beverage experiences, a spa and other amenities. Other notable mixed-use projects include the Four Seasons Hotel Montreal (which opened in May 2019) and the Riu Plaza Hotel Toronto, which is slated to open in 2021.

“Imagine you’re in your condo and you have a separate elevator bank,” says Loehr. “You just got back from work and now you want to take the edge off and go downstairs, have a cocktail and a meal. You have an actual hotel-lobby bar and the hotel restaurant almost becomes adopted by those residential owners. As residential renters, it’s an easy, convenient place for them to come down and enjoy a club-like environment they basically just inherited. As a hotel owner, you start to see the opportunity there and that it’s very complementary to [take advantage of that] and to have those services. And in those cases, a hotel can fit really nicely.”


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