By Rosanna Caira
In recent months, there’s been a great deal of speculation as to whether Canada is headed into recession. According to a recent panel organized by CoStar Group on Feb. 7th, analysts agreed the country is indeed headed in that direction. According to Carl Gomez, Co-Star, “We’re headed into a moderate recession,” citing statistics that show the Canadian economy slipped into negative ground. Having said that, Gomez did state that Western Canada is outperforming the rest of the country.
Not surprisingly, labour continues to present certain challenges. With unemployment at its lowest rate of five per cent, Gomez said that most job growth is taking place in public sector explaining that other service sectors haven’t been able to hire people back, and have not recovered back to 100 per cent.
And with inflation continuing to increase, and discretionary spending contracting, “consumer purchasing power is very weak… and we’ve seen declines in real income,” says Gomez. Still, according to Laura Baxter, director, Hospitality Analytics – Canada, CoStar Group, spending on tourism-related activity (restaurants, hotels, travel) has actually surged since the pandemic. “There’s still a lot of pent-up demand,” she says.
According to Baxter, key hotel metrics show a remarkable recovery especially in the second half of the year (2022) fuelled by two key drivers – ADR and strong demand. RevPAR rebound has been strong, said Baxter, explaining that hoteliers did not cut rates to drive demand and that’s key. “Occupancy recovered at a slower rate, and western markets did very, very well, outpacing the national average,” said Baxter. “This was a result of strong leisure domestic market,” she says. On the other hand, urban markets lagged. “Overall, we saw remarkable recovery in 2022 but as we look forward and enter into a probable recession, there are questions surrounding whether this growth will be maintained or whether it will pull back.”
Baxter did stress that CoStar is expecting growth year on year and more recovery to take place but “because of some downward pressure on discretionary spending, we are expecting growth to pull back significantly year on year, with the majority of the rebound taking place in 2022. We do enter a moderate recession with GDP contracting by 1.3 per cent in 2023 compared to last year.” That pent-up leisure demand is expected to be maintained this year, says Baxter noting that corporate travel is expected to be impacted over the next year or two.
Duncan Chiu, Senior Director, Lodging Development – Western Canada at Marriott International, Western Canada echoed many of Baxter’s sentiments. “We’re extremely encouraged by the positive momentum in demand in all the customer segments,” said Chiu. “We haven’t seen a slowdown in demand despite all the recessionary talk, the rebound in leisure and group is very strong…The one segment that continues to lag is special corporate,” says Chiu, “but we continue to see week over week improvements in all of Canada.”
Carrie Russell, senior managing partner of HVS, Vancouver, said she’s “encouraged by a positive outlook for 2023, saying “It is a challenging time to look into the future right now because there’s such a short booking window,” but she says HVS is in alignment with CoStar numbers. “We think it’s going to be a positive year.” She’s encouraged that “the industry has really learned how to push average rate because they needed to because costs had inflated. If demand softens because of a recessionary period, [the question is] are hotels in a position to hold that rate. Consumers still show us that spending on hotels and travel and connecting with others is critically important to them so we’re not seeing a slowdown in numbers despite the fact there’s a lot of talk on the slowdown in the economy.”
Russell stressed that growth should happen in the urban areas because they have been the laggards. “We’re still waiting for some of the international travel to come back.” Chiu added there’s a lot to be optimistic about for the Western Canadian markets, noting’s interest in Metro Vancouver, Fraser Valley, the Okanagan, and Chilliwack. In Alberta, Canmore and Calgary are expected to show growth this year.
Russell did warn that labour will continue to be a big issue as will rising energy costs and insurance rates. “The industry has done a good job in streamlining departments, and there have been efficiency gains,” says Russell, but labour costs will continue to increase. “Per hour rates have gone up,” says Russell, and “there’s been lots of retention bonuses paid out.”
As for whether the industry has managed to retain value, Russell says that in some cases, the value for hotels is even higher, citing that last year’s RevPAR exceeds 2019 levels. She also notes that hotel cap rates are higher than other sectors as the hotel industry is riskier than other industries. “Vancouver has the lowest cap rates in Canada, says Russell while the highest rates can be found in Alberta.”