It’s taken the hotel industry seven years to get back to the strong industry fundamentals posted in 2000, the best year on record for Canadian properties. With watershed events such as 9/11 and SARS clearly behind us, the industry is on a roll towards yet another solid year. Over the past 365 days several hotels changed hands as key transactions continue to make the headlines. In fact, 2006 saw record transaction volume, equaling $3 billion, including the high-profile sale of Fairmont Hotels & Resorts and Four Seasons, two global giants, still headquartered in Canada, but no longer owned by Canadian interests.
With that as a backdrop, Hotelier is pleased to participate in the 11th annual Canadian Hotel Investment Conference. Much has changed during those turbulent 11 years, and the only certainty is the hotel landscape will continue to change dramatically in the coming years. Despite global fragility and geopolitical tensions that continue to impact every industry, hotel owners around the world are smiling. According to PKF, 12 successive quarters of year-over-year demand growth in the U.S. have driven property values and transaction activity back to pre-9/11 markets.
And while insiders anxiously wait to see how long this strong cycle lasts, the industry has hopefully learned some valuable lessons during the past decade. For example, through the wild rollercoaster ride of activity, several hotels slashed room rates in order to appeal to a dwindling customer base. But hoteliers learned the hard way that cutting rates is tantamount to financial suicide. Finally, rates have inched upwards fuelling strong double-digit profitability for owners. According to Smith Travel Research, the average cost of a hotel room in the U.S. has increased by 23 per cent during the past four years. At home, a boom in Western Canada has spurred similar increases. But just as cutting rates is a mistake, increasing them dramatically can also create challenges; it’s critical to maintain a fine balance between what customers will accept and what’s viewed as gouging.
While nobody can accurately predict the future, for now the hotel industry is undergoing a period of rampant growth and vibrancy. With the Winter Olympics only a few years away, several new luxury properties being added in major cities such as Toronto and a slew of exciting new concepts capitalizing on changing technology and design coming to fruition, there has never been a more exciting time for hotel guests and owners alike.
But let’s not forget history is a good teacher. As we move the industry forward in innovative and exciting ways, hoteliers and financiers need to ensure supply doesn’t outpace demand, room rates continue to grow (but not so excessively they scare guests away) and that ultimately the guest experience is the most important motivating factor behind any business decision.