By Robin Roberts
You know what they say in the real-estate business about location, location, location? Don’t say it. At least not to a developer, and especially not to Scott Duff, vice-president, Development, Canada, IHG.
It’s an over-used phrase, but that doesn’t mean he, and every other hotelier and developer, aren’t acutely aware of how important location is when choosing a development site for a new hotel.
Haves and Have Nots
“Aside from access and visibility, having supportive services in the immediate area can also be important,” says Duff. “For example, if you’re building a Holiday Inn Express, it may have a terrific complimentary continental breakfast but that’s not going to satisfy you for dinner. So having access to a variety of restaurants is important.”
He adds that the type of hotel would usually dictate the type of demand generators. A holiday hotel would appeal to leisure guests who would prefer to be near shopping, attractions and nature. Business people would likely seek out a hotel near a convention centre or other industry.
“A large convention hotel works in markets where there’s access to major airports, urban markets and year-round travel, which are all very important when looking at a new build,” says Sylvia Occhiuzzi, senior vice-president, sales representative for Beechwood Real Estate Advisors Inc.
Both Duff and Occhiuzzi say that, while visibility — that glowing sign like a beacon off the highway, for example — is still important, it’s not as important as it used to be.
“People look at reviews and are much more thoughtful about where they’re staying, but location and accessibility are still very important,” says Occhiuzzi.
Duff says he can think of some hotels that have fabulous visibility in great locations but are a challenge to get to, requiring guests to navigate multi-lane highways, interchanges and one-way streets. But with widespread adoption of technology, many travellers simply plug their destination into their GPS, which will lead them to the front door.
Local Know-How
Tapping locals for their insight can reveal a wealth of information. Duff offers the example of a Tim Horton’s franchise owner in a small northern Ontario community who wanted to build a hotel. Because the town was so small, Tim Horton’s initially had no interest in establishing a restaurant there. “[The franchise owner] ultimately convinced them to do it,” says Duff. “What he saw that the brand person didn’t was that right beside his site was a Greyhound bus stop. He knew that every day about 18 buses would stop there for 10 minutes, and everybody would get off to go to the bathroom, get a coffee and something to eat. Now, that wouldn’t necessarily translate to our business, but it made for a mighty successful Tim’s.”
There are also developers who are blinded by a beehive of activity and assume a hotel would fit right in. “Just because tens of thousands of tract houses are being built [along with] hundreds of thousands of square feet of retail and millions of square feet of warehouses and distribution centres, those people don’t need a hotel,” says Duff.
This is where location intelligence comes in — using location-specific data such as demographics, traffic, environment, economics and weather to guide site decisions. Duff says this analysis, however, is the purview of developers and consultants rather than hoteliers.
“We’re not the ones going out and taking down the site and buying the hotel. Because virtually all chains are what we call asset light, we don’t own the real estate, we’re simply licensing our brands through either long-term franchise or management agreements.”
Location intelligence should also assuage the fear that, once you’ve selected your site, built your big, beautiful hotel and thrown open your doors to welcome the world, a pulp and paper mill won’t break ground next door. “I think developers do a good job of surrounding themselves with the right consultants and partners to do their due diligence,” says Occhiuzzi. “They understand what the potential for a market is, what the local drivers are, what land is around them that may either be for sale or planned for new development and what that development is going to be.”
Setting your Sites
While bustling urban centres such as Vancouver, Toronto and Montreal are still attractive to developers, they’re out of reach for many of them due to higher costs and a lack of sites.
“People would love to build in those major markets, but availability is very limited and the cost of buying a site to build is still pretty prohibitive,” says Occhiuzzi. “Everyone still recognizes that the major markets —Toronto and Vancouver, for sure — are under-supplied. It’s just figuring out how to unlock land opportunities and how to reconcile the cost of that with the viability and feasibility of a hotel.”
Duff agrees. “The value of some of these sites is such that you can’t build just a hotel there, the economics may not support that. You end up having to do a mixed-use project that may have a residential component to it, for example. And forget about the land — construction costs are so high that it may not make economic sense as a stand-alone hotel.”
He says during COVID, properties in major city centres that were driven by corporate demand essentially dried up. “But secondary markets, and particularly the tertiary ones, often continued to be very strong performers because they were being driven by everything from people in the logistics businesses to pipeline crews, road and rail crews, who continued to travel. We like tertiary markets, provided there’s a good underlying economic story there,” says Duff.
He says IHG is well-represented across the country with its mix of luxury and lifestyle brands in city centres as well as others that are a good fit for secondary and tertiary markets. A few exceptions are Halifax and Greater Quebec City, both of which are on the company’s radar. But, Duff says, “Quebec City is an extremely hard market to penetrate and find new deals. There tends to be a strong predisposition to go the independent route. I think that’s just a testament to the strong local culture.”
Lodging for Staff
Hotels planned for remote areas or have strong seasonality patterns will have to factor in staff accommodation, says Occhiuzzi. “Is there a local pool of labour to draw from or do they need to bring in staff? If they’re bringing in staff, have they considered staff accommodation? Is there enough in the market where people can stay or do they have to offer accommodation? And if they’re offering accommodation, that’s going to be another cost.”
Duff says that cost isn’t insignificant. “Take a place such as Banff, Alta. You don’t see a lot of big apartment buildings; you have a very limited housing stock and you’re not close to anything. Canmore is nearby but the cost of living is high.”
He also notes that hoteliers have to consider to how staff gets to your hotel, especially if they’re relying on public transit. If that’s not readily accessible, it can be problematic. All told, the secret to a successful site is location. Then there’s location, followed by location.
