Western Canada is more than just a land of sweeping prairies, soaring mountain ranges and ocean-carved coastlines; it’s also a land of highway-adjacent limited-service hotels, modern urban boutique hotels, airport-supported, focused service properties and extended-stay lodging facilities, among other accommodation options. With just under 3,000 hotels and approximately 190,000 guestrooms, Western Canada accounts for 44 per cent of the total room supply in Canada.
The west is the hotbed of hotel-development activity in Canada. Of all the new supply opened in Canada in the past 12 months, 70 per cent was built on Western Canadian soil — comprising 35 new hotels with 3,785 guestrooms. This represents a two-per-cent increase in supply, in contrast to a 1.2-per-cent increase nationally. Moreover, 63 per cent of the rooms now under construction in Canada are in the west — 31 hotels with 4,846 rooms, reflecting a 2.5-per-cent increase in supply (compared to 1.8 per cent nationally).
Nearly all the new hotels under construction are branded and most are limited-service, select-service, or extended-stay products. Among the new brands opening in the west are Candlewood Suites, Element by Westin and Hyatt Place. In addition, Alt, which originated in Quebec and is established in Eastern Canada, now has a property in Winnipeg and a property under construction in Calgary, with plans of moving into the Saskatoon market.
Alberta is driving supply growth in the west — of the 35 hotels that recently opened in Western Canada, 21 are in Alberta. This addition of 2,222 hotel rooms represents a substantial three-per-cent increase in lodging supply for the province. Supply growth in Alberta is showing no signs of slowing, with 23 more hotels — another 3,615 guestrooms — now under construction.
Eight markets in Alberta now have new hotels under construction. Calgary and Edmonton are seeing the most activity with nine hotels (1,832 rooms) and seven hotels (953 rooms), respectively. In Calgary, four of the hotels under construction are in the airport market, four are downtown and one is in the south. The 390-room Residence Inn Downtown Calgary is the largest hotel under construction and will be the largest in the Marriott system when it opens this year. In Edmonton, the new guestroom inventory will include large brand families such as Hilton, IHG, Marriott and Starwood, as well as two new Hyatt Place properties in downtown and West Edmonton. In addition, Sherwood Park, Cold Lake, Grande Prairie, Red Deer and Banff all have new hotel supply under construction. The new supply in Banff — the recently opened Moose Hotel — is notable given the restrictions on development in national parks.
The pace of lodging-supply growth in Alberta stands in contrast to the current malaise in the provincial economy. Hotels are still being built in Alberta due in part to the hangover from the apex in the demand cycle when there was pressure for rooms on peak nights. Developers already committed to hotel projects continue to execute on previously laid plans. In addition, Alberta is more developer-friendly than anywhere else in the country. Not only are development charges lower, but there is less red tape and fewer bureaucratic hurdles.
Saskatchewan is also experiencing large increases in supply. In the past 12 months, nine new hotels with a total of 1,048 guestrooms have opened — a striking 5.3-per-cent increase in supply for the province. Unlike Alberta, however, new supply is now dissipating from the pipeline. Only three hotels with 336 guestrooms are now under construction; this nonetheless represents a 1.7-per-cent increase in the province-wide supply, in line with the national average.
Despite strong RevPAR growth, B.C. has seen little new hotel development. In the last 12 months, only five hotels with 515 rooms have opened — a trifling 0.6-per-cent increase in supply. Government hurdles to development and high land values are limiting the rate of supply growth in the province and bureaucracy results in long wait times for rezoning and permit applications approvals. More significantly, the high cost of land is making hotel development less feasible and making competing uses (such as condos) appear more lucrative — it is therefore no accident all the recent hotel projects in Vancouver have a condo/mixed-use component.
Nevertheless, the first new hotel to be built in Vancouver in five years will open this fall — the 147-room Trump Hotel. Next year, the Autograph/JW Marriott will add another 517 rooms to the city. Outside of Vancouver, there are only a couple of limited-service properties under construction, but there is an increasing interest in resort projects now that the performance of resort markets is improving with the revival of international visitation. Developers are starting to engage with architects and consultants to get projects into the planning stages; however, resort markets typically rely on fractional, time-share and strata-ownership structures and the ongoing lack of interest in these types of ownership will likely temper significant new development in resort areas for the foreseeable future.
Manitoba experienced a flurry of hotel-development activity in 2013 and 2014, but since then construction on hotels in the province has been dormant. There are currently no hotels under construction in Manitoba and nothing new has opened in the past 12 months. A few projects are in the planning stages, but no major increase in supply is anticipated in the near future.
In Western Canada, hotel development activity is spread unevenly among the four provinces, shaped by differences in government policy, hotel performance, land economics and economic fundamentals. Looking to hotels in the planning stage, activity appears to be moving east. Western Canada is still seeing more than its fair share of development activity, but only 54 per cent of the hotels now in the pipeline for Canada are in the West, well below the 70 per cent mark for the hotels that opened in Canada in the past 12 months. Still, there are 65 hotels — nearly 8,000 rooms — in the planning stage in Western Canada, so the lower percentage of the national supply pie is likely due to an uptick in development activity in the east rather than a slowdown in the west.
Carrie Russell is a partner and a managing director at HVS Canada (www.hvs.com). She has both her AACI real-estate designation (Accredited Appraiser Canadian Institute) and MAI (US Appraisal Institute) and has been part of the real estate and hotel industry for 19 years. She can be reached at [email protected]
Volume 28, Number 6