By Nicole Di Tomasso
Last month, Cushman & Wakefield released its InnSight Quarterly Q1 2022 report to provide an update on Canada’s hotel performance. Overall, the sector saw better than expected results despite the impact of the Omicron COVID-19 variant earlier in the year. Average Daily Rate (ADR) has been strong, and corporate and group demand have started to recover with the return of large events over the next several quarters. As a result, hotel occupancy will improve.
First, the lifting of restrictions in Q1 2022 restored consumer confidence in travel to a degree. As a result, Revenue Per Available Room (RevPAR) saw triple-digit growth in eight of the top 10 markets, with the markets that struggled the most throughout 2020 and 2021 showing the strongest improvements, according to the report. The strongest Q1 2022 RevPAR gains were for urban and city centre hotels, luxury hotels and hotels with more than 500 rooms.
While all major Canadian cities showed significant RevPAR growth, the strongest growth was seen in Calgary at 151.4 per cent, followed closely by Quebec City at 149.2 per cent and Montreal at 148.2 per cent. Halifax, Toronto, Edmonton and Ottawa experienced mid-range growth between 102 per cent (Ottawa) and 124 per cent (Halifax). The markets with the slowest growth were Vancouver and at 101.3 per cent, Victoria at 98.7 per cent and Winnipeg at 85.6 per cent. Overall, 75 per cent of demand is expected to recover in 2022.
With regard to development costs, the report says new developments are facing a number of challenges, including significantly higher land and building costs. In particular, land costs in downtown and suburban areas have reached record highs, as well as secondary and tertiary markets. In addition, hotels in some areas have to compete with other land uses, such as industrial or residential development. Developers of new hotels and existing owners undergoing hotel renovations will also face higher costs, material shortages and transportation and delivery delays.
“In the short term, developers may have to press the pause button on some of their projects if development costs and the value of land exceeds current and prospective values,” says Cindy Schoenauer, vice-present of Hospitality & Gaming Valuation & Advisory, Cushman & Wakefield. “Over the long-term, as development costs stabilize, there may be opportunities to resurrect plans and proceed.”
Schoenauer continues, “When it comes to land, developers may consider leased land opportunities, or new development or expansion where there is excess density. Some developers may also look to a joint venture opportunity with a construction company in order to possibly save on development costs. Hotel owners who also own construction firms will be at a special advantage.”
While 2022 has signaled the start of a strong recovery for Canada’s hotel sector, performance is expected to vary across the country. The report says that while some markets are projected to see a recovery over the next two to three years before returning to 2019 levels, others may reach 2019 levels as early as 2023.
Furthermore, suburban, highway, resort and small towns have already seen March 2022 ADR results surpass those of March 2019. These markets are well-positioned for a strong recovery. Growth in urban locations has indicated the beginning of recovery as more Canadians slowly return to office and large conventions and city-wide events resume. Airport markets also lag behind 2019 ADR levels, but will start to see improvements as airline traffic increase. The report says that Air Canada has projected it will take three to four years for total passenger volumes, including international travel, to recover to pre-COVID levels.
RevPAR growth for markets that were significantly challenged throughout the pandemic for the YTD March period include Niagara Falls, Toronto, Montreal, Calgary and Vancouver Downtown. So far, Niagara Falls RevPAR increased 312 per cent to $51 in Q1 2022; Toronto increased 269.7 per cent to $67; Montreal increased 265.4 per cent to $41; Calgary increased 226.8 per cent to $44 and Vancouver increased 175 per cent to $85. These markets in particular will face a longer road to recovery.
“We are seeing strong recovery growth into 2022. Based on YTD April 2022 results, demand is up 46.8 per cent, ADR is up 29.3 per cent and RevPAR is up 117.5 per cent over YTD 2021 results for the same period,” says Schoenauer. “Based on YTD April 2022 results, national RevPAR is at 80 per cent of 2019 levels. Depending on the market and the type of hotel, we should see full recovery into 2023, 2024 and 2025.”