Supply will play a pivotal role in Canada’s hotel industry performance

By Nicole Nguyen, SVP CBRE Hotels

In 2024, the Canadian hotel industry is entering a period of relative calm after the storm. We’re now well removed from the COVID pandemic and its devastating impacts and through the period of accelerated growth which saw national RevPAR make a full recovery in just three years. Across the country markets have, for the most part, returned to or surpassed prior peak top-line metrics, with solid growth expected in 2024. 

Supply is again playing a significant role in the industry’s performance in 2024. Between 2020 and 2023, the country only saw about 11,400 new rooms enter the market which is less than two years worth of growth in a four-year period. This year will again see relatively little supply growth (0.8 per cent) or 3,600 rooms, which is both a positive and a negative for the industry. On one hand, lower levels of supply growth may be limiting the ability to accommodate additional demand, particularly during peak periods. But on the flip side, the lower levels of supply have allowed the country to rebound to record occupancy levels and drive strong rate growth. 

National demand growth for the year is projected to be a little less than half of a per cent adding approximately 450,000 occupied room nights. With supply and demand generally balanced occupancy is expected to remain at a peak of 66 per cent. 

Growth in ADR coming out of COVID was supported by a macro economic environment with high inflation along with the quick return of leisure travel and the element of “revenge travel.” With Canada’s GDP growth in 2024 projected to be just 0.2 per cent and inflation continuing to fall (dropping to 2.5 per cent in July), the macro economic environment has shifted. This alongside increased demand from contracted rate sources has pulled rate growth back to a level (~3.5 per cent) which is more in keeping with the long run trend of two to four per cent per annum. 

While national RevPAR is projected to hit $133 this year, 125-per-cent ahead of 2019 levels, when you dig a little deeper a story emerges: the major markets* vs. the rest of the country. *All projections are rounded 

In 2022 and 2023, the growth in demand was being led by the secondary and tertiary markets across the country where demand sources were more local and regional. This resulted in a faster recovery to prior peak demand levels and seasonal capacity constraints while excess capacity lingered in the major markets. In 2024, although demand growth nationally is projected to be about half of a per cent, this will come from the one per cent demand growth projected in the major markets while the balance of the country is not expected to see any demand growth. 

If we drill down into the major market fundamentals and look specifically and the downtown submarkets, it’s worth noting that with the exception of downtown Vancouver, the other major downtown submarkets remain several points off of prior peak occupancy levels for a couple of reasons. 

First, in a number of the major downtown submarkets, there’s some softness in 2024 related to city-wide events. Given the length of the booking window for these types of events (three-plus years) the delayed impact of COVID is being felt in this segment now. During part of the period of time when these events were being booked there were still border restrictions, quarantine requirements and other measures in place in Canada due to the COVID pandemic. Market participants have indicated that due to the uncertainty at this time some of the city-wide events our markets should have secured selected other destinations.  

Second, many of our major markets are being impacted by the dynamics of their respective office markets. In Canada’s major downtown markets office vacancy rates run from a low of 9.5 per cent in Vancouver to a high of 30.3 per cent in Calgary. While there has not historically been a direct correlation between office vacancy rates and corporate demand for hotel accommodation there is, at a minimum, a loose relationship. With higher vacancy rates, as well as the adaptation of virtual meetings, corporate travel demand remains below 2019 levels.    

The Conference Board of Canada is projecting that although overnight visits to Canada in 2024 will be up 7.6 per cent over 2019 levels domestic business visits will be about two per cent behind 2019. Additionally, while total U.S. and overseas overnight visits will only be four-per-cent below 2019 levels, U.S. and overseas business visits will be 68 per cent and 82 per cent of 2019 respectively. As business visitation and corporate demand levels improve so too will the occupancy levels in the downtown markets. 

As shown above, RevPAR growth in the major markets is projected to be stronger than for the rest of the country. In the major markets, supply and demand are projected to be balanced and as a result the four per cent ADR growth should translate into four per cent RevPAR growth. For the balance of the country RevPAR growth is projected to be just two per cent as the three per cent ADR growth is eroded by supply growth outstripping demand growth. 

Looking ahead the opportunity for growth in the industry will likely come from the major markets getting back to prior peak occupancy levels once specific sources of demand return. Additional growth is likely to be realized when new supply enters the market increasing capacity. Finally, if the industry is able to continue to drive positive ADR growth RevPAR will see solid year over year increases.  

REGIONAL ROUNDUP

By CBRE Hotels & CBrE Tourism Consulting

Heading into the year, the expectation was that 2024 would be the most moderate year of growth for the industry since the onset of the pandemic. With national occupancy already pushing up against historic peaks and a relatively limited amount of new supply, demand growth was projected to be modest. Following significant ADR and RevPAR growth through the recovery phase, both were projected to grow more in line with long run norms, two to four per cent in 2024. Based on the current forecast, national RevPAR performance is generally expected to be in line with these expectations, although there are certain markets and regions where the performance will deviate from the national trend. Its against this backdrop that CBRE has prepared its 2024 Market Forecast.

Major Metro 

Market Outlook

Canada’s major markets account for approximately 40 per cent of the total rooms across the country and have a significant influence on the national performance for the industry year to year. After realizing exceptional growth in RevPAR in every one of Canada’s major metro markets in 2023, the pace of growth is expected to be much more muted in 2024. It’s against this backdrop that CBRE has prepared its 2024 Market Forecast. *All projections are rounded 

Vancouver

The provincial economy in British Columbia is facing some headwinds in 2024, however, the regional accommodation market continues to push forward on the strength of tourism. After posting a record- breaking cruiseship season in 2023, the city is expected to surpass last year’s passenger numbers with a new record of 1.27 million passengers in 2024. Similarly, passenger statistics at YVR in 2024 are pacing well ahead of last year and total volumes may reach pre-pandemic results by year end for the first time. Helping to boost these passenger volumes and visitation to the city in general, has come, at least in part, from the airlines. There were several new routes announced this year, as well as increased frequencies and capacities on some routes into Vancouver.

How this translates for the local accommodation sector is another year of strong occupancy. Room demand is expected to be mostly flat for Metro Vancouver in 2024, however, projected market occupancy at 79 per cent is considered very healthy and is the highest nationally. A modest number of new rooms to the market will be wholly absorbed as some demand growth is expected downtown and in other suburban markets. Market wide ADR is proving its has strong momentum with relatively robust growth expected across all submarkets. Growth of 6.5 per cent or $17 is projected for market ADR. Overall, RevPAR for Metro Vancouver is projected to improve six per cent to $224, the best in the country another year running.

Vancouver

Calgary 

In terms of the provincial economy, Alberta is expected to be among Canada’s growth leaders in 2024 in real GDP, which is forecast to outpace national growth rates. The Trans Mountain Pipeline is officially in operation, which is helping to improve export capacity and boosting energy production. Significant growth in population for the province is driving activity in the construction sector and consumer spending, and the province is diversifying its economy with growth in non oil and gas sectors.

With respect to tourism, the Calgary Stampede set a new all-time record for attendance in July 2024, surpassing the previous record set in 2012. The event saw close to 1.48 million visitors, a 4.9-per-cent increase over the previous record. Likewise, the Calgary International Airport broke its previous record for passenger volumes in 2023 and is ahead of last year’s pace in the first half of 2024. In June, the expanded BMO Centre at Stampede Park officially opened, making its convention space the largest in western Canada.

Occupancy for the Calgary accommodation market for 2024 is projected to reach 67 per cent, which is well ahead of pre-pandemic results and inching closer to past highs.  Occupancy growth, at least in part, is attributable to a lack of any substantial new supply in 2024. In terms of ADR, growth of two per cent for Calgary overall is projected for 2024, reaching $178. Contrary to the norm, downtown Calgary’s projected rate growth is underwhelming relative to its demand growth. The pace of growth has not been there at least in the first half of the year. With that being said, RevPAR in greater Calgary is projected to improve a healthy six per cent on the strength of demand growth.  

Calgary

Edmonton

Edmonton is gathering momentum in 2024 alongside the strides being made provincially. The city has experienced strong population growth due to its relatively affordable housing, which has helped to push up consumer spending, despite recent inflation and interest rate pressures. Edmonton’s office and industrial markets have had continued positive absorption recently, which has led to decreased vacancy rates and expected rental rate growth. And retail has experienced a strong bounce back since the pandemic.

While there were early season wildfires in the northern half of the province that may have tempered at least the perception of upcoming travel, any concerns seemed to be quickly offset by a strong Oilers playoff run. 

Passenger statistics at Edmonton International Airport show continually improving traffic through the airport post-pandemic – volume is up 2.3 per cent through two quarters relative to the same period in 2023. Passenger volume in 2023 reached 7.5 million, compared with 8.15 million in 2019.

From an accommodation perspective, supply growth in the Greater Edmonton market has been very moderate over the last few years after experiencing years of significant growth. As a result, the gains in market demand are leading to improvement in occupancy, which in 2024, is projected to reach 61 per cent, the first time the market has achieved better than 60 per cent since 2015. Very healthy rate growth is expected downtown and in each of the submarkets, which is leading to projected ADR growth of 7.5 per cent overall – a very strong result considering the nine per cent rate growth posted in 2023. RevPAR for the Greater Edmonton accommodation market is projected at $89 in 2024, up from $79 in 2023. 

EDMONTON

Regina

While Regina’s economy has been moving along at a relatively steady pace for a number of years, the accommodation market has had to work hard to try to recover from occupancy levels that were eroded by a significant volume of new supply to the market over a five-year period beginning in 2013. And despite a number of years with very little in the way of new accommodation supply thereafter, the pandemic made the road to recovery even longer. 

In 2024, total occupied room night demand for the Regina market is projected to reach above pre-pandemic levels.  Outpacing growth in supply, room demand is projected to increase by five per cent, pushing occupancy up two points over 2023. Encouragingly, market ADR is projected to be $137 in 2024, which is an historic high for the market. Overall, RevPAR for the Regina market is expected to increase to $77 in 2024, up approximately seven per cent. 

REGINA

Saskatoon

Economists are projecting economic growth for Saskatoon in 2024 due to population growth, steady commodity pricing in potash, uranium and canola, and significant capital investments from both the private and public sectors. 

In 2023, passenger volumes at the Saskatoon Airport reached to within 85 per cent of the pre-pandemic volumes and every month to mid year 2024 has outpaced last year. In fact, in more recent months, passenger volumes have outpaced even 2019 levels by up to five per cent per month. 

Saskatoon enjoyed healthy RevPAR growth at 21 per cent in 2023 due to improvements in rate and demand in equal measure. A much more muted performance is expected in 2024, albeit at a still healthy 5.5 per cent projected growth in RevPAR. Demand is expected to inch forward to push occupancy up by one point, while ADR is on pace to finish about $6 or four per cent ahead of 2023.  

SASKATOON

Winnipeg

A steady and diverse economy helps to keep Winnipeg in a good economic position year over year, however, in 2024, the economy is expected to slow before picking up again in 2025. Tourism is a bright spot in the local economy as visitation increases year over year, including from international markets. The city continues to host several large events and festivals and Indigenous tourism is on the rise.

At least from an accommodation market perspective, 2023 will be a tough year to beat for the Winnipeg market. A perfect storm of a strong local economy, recovery from the pandemic, and Ukrainian refugees housed in hotels, led to the city’s best-ever occupancy, ADR and RevPAR results by a wide margin. While it is expected that there will be some contraction in demand in 2024, the market is projected to continue to build off of recent gains in ADR. Overall, it is projected the market will see occupancy finish at 73 per cent, down four points from 2023, but with a 4.5-per-cent lift in rate. RevPAR is projected to be just $1 behind 2023 results.

Winnipeg
2020 2021 2022 2023 2024

Toronto

The Greater Toronto Area has seen good economic and tourism recovery over the last couple of years, however, 2024 is expected top see a modest contraction in GDP and employment growth. Nonetheless, Toronto remains the economic centre of Canada and conditions over the coming years are expected to improve. 

On the tourism side most visitor segments have returned and exceed 2019 levels with the exception of overseas and domestic business which are both in the range of 90 per cent of pre-pandemic levels. 

Supply growth in the GTA slowed in 2023 to about two per cent with approximately 850 new rooms opening. It’s expected that supply growth will grow at a similar pace in 2024 as well. The supply is fairly well dispersed across the Toronto sub-markets. Following 11 per cent demand growth last year, lead by the downtown Toronto sub-market, occupancy improved to 74 per cent. In 2024, supply and demand in Toronto are projected to grow in balance with occupancy remaining flat at 74 per cent.    

In 2023, ADR growth was very strong at 13 per cent as demand growth in the shoulder and low periods allowed for stronger rate yield. The market ADR increased by $26 to $228. After a strong start to the year and major events in the latter months including TIFF and the Taylor Swift concerts, it’s projected that ADR will grow by 2.5 per cent, increasing by $5 to $233. The stable occupancy levels and improvement in ADR should drive RevPAR improvement of approximately $4, or three per cent for 2024 following the 23-per-cent increase in RevPAR realized in 2023. 

Toronto

Niagara Falls

Niagara Falls is one of Canada’s predominant destination leisure markets with travellers from across the country and around the world visiting each year to experience the Falls and various attractions in the area. Visitation to Niagara has rebounded with total visits in 2024 expected to be up over 2019 by eight per cent. The U.S. and overseas visits are still somewhat below 2019 levels but are expected to rebound fully in 2025. 

In 2023, Niagara Falls saw a 25-per-cent increase in demand driving occupancy up to 69 per cent. While some of the demand growth was linked to increased U.S. and international individual and group (i.e. tour) travel, there was also non-traditional demand in the market. These conditions were also evident in the market ADR growth being only three per cent. While RevPAR growth of 29 per cent or $32 was significant, it wasn’t expected to hold in 2024. 

With no supply changes projected for 2024 and the bulk of the non-traditional sources out of the market occupancy is expected to drop by six points to 63 per cent as the result of an eight-per-cent decline in demand. However, with this demand, out of the market ADR is showing strong growth through the first half of the year with the summer and fall expected to be strong as well. The market is projected to see ADR growth of 15 per cent or $31, increasing to $238 in 2024. The significant improvement in ADR will offset the decline in occupancy and RevPAR is projected to increase by six per cent or $8 to $150. 

NIAGARA FALLS
2020 2021 2022 2023 2024

Ottawa

As Canada’s capital city and the seat of the Federal Government, Ottawa’s economic performance is closely tied to government and government-related business. Public administration accounts for about one third of the region’s annual GDP. In 2023 GDP growth was estimated to be 3.1 per cent slowing to just 0.7 per cent in 2024 before rebounding in 2025. 

Total overnight visitation to the region was up 15 per cent in 2023 surpassing 2019 levels with another five-per-cent growth projected in 2024. While U.S. visitation levels have largely recovered, overseas visitation is sitting at 93% of 2019 in part due to some geo-political dynamics. 

Both occupancy and ADR grew significantly in 2023 up seven points and 11 per cent respectively. The strongest demand growth took place in downtown Ottawa which recorded a 19-per-cent increase with no changes to supply. This demand was driven by increasing in-person government and the related corporate business as well as meeting and conference activity. As a result of the improved conditions, RevPAR grew by 24 per cent to $134 finally surpassing pre-pandemic levels. 

In 2024, the Ottawa market is projected to see occupancy hold flat at 69 per cent as demand and supply are expected to contract modestly. Market ADR is projected to improve by two per cent or $5 to $201 in 2024. As a result of the flat occupancy and the growth in ADR market RevPAR is expected to finish at $138, a $4 or three-per-cent improvement over last year.

OTTAWA

Montreal

GDP growth for the Greater Montreal Area was forecast at 1.7 per cent in 2023 and expected to slow to 0.7 per cent in 2024 before recovering to 2.7 per cent in 2025. The economy in Montreal is experiencing significant growth in manufacturing and retail & distribution. In addition, the housing market is holding up a bit better than others. The Greater Montreal Area saw some of the quickest rebound in visitation, exceeding it’s 2019 levels back in 2022. Montreal has had a significant number of international visitors, not only from the U.S., but also from Europe (namely France) due to its linguistic and cultural ties. While these segments of visitation have returned to almost 2019 levels the visitation has been buoyed by domestic pleasure travel. 

Occupancy in 2023 jumped to 71 per cent, nearing pre-pandemic levels with downtown generating more than 850,000 occupied room nights and making the greatest contribution to the wider market’s performance. The two per cent supply growth was more than absorbed by the 15 per cent demand growth. The increase in occupancy along with the 10 per cent ADR growth resulted in RevPAR improving by 23 per cent to $160. 

Although there has been modest demand growth through the first part of the year the supply growth in the market has outstripped this and occupancy has dipped. This trend is expected to persist through the balance of the year. Demand growth for Montreal in 2024 is projected to be one per cent against a two per cent supply growth which will result in occupancy falling one point to 70 per cent. The market is expected to see rate growth continue in 2024 and ADR is projected to increase two per cent or $4 to $231 for the year. The growth in ADR will help to offset the decline in occupancy. Overall, RevPAR in the Greater Montreal market is expected to improve by one per cent, increasing $2 to $162 in 2024. 

MONTREAL

Quebec City

Quebec City features a diversified economy and is the seat of the Provincial Government. GDP growth in the region was strong in 2023 at 2.9 per cent and while it’s expected to slow in to 1.2 per cent in 2024 over the medium term it’s projected to be in the range of 2.5 to three per-cent per annum. With a significant amount of domestic pleasure and overseas visitation to the city driving robust leisure demand, the city also sees consistent year round demand from government and meeting conference business. 

In 2023, Quebec City saw a significant improvement in overall accommodation demand, which grew by 19 per cent and helped lift occupancy by 11 points to 68 per cent. The increased demand in the market was driven by leisure but also increasing government and meeting/conference business. Demand in the market is expected to much more moderate growth in 2024 increasing by two per cent and pushing occupancy up another point to 69 per cent. The market saw a strong start to the year particularly with meeting/conference activity. 

Market ADR saw about four-per-cent growth in 2023 as much of the demand growth was concentrated in the shoulder and low seasons and with lower rated demand segments. The strong occupancy and solid ADR growth resulted in a 23-per-cent increase in RevPAR which was up $28 to $152 in 2023.

While slightly lower than 2023, rate growth in Quebec City is expected to be positive in 2024 at three per cent, lifting ADR to $230. Overall, RevPAR in the market is expected to improve four per cent in 2024 as a result of the good rate growth and solid occupancy, increasing $6 to $158 for the year.

QUEBEC CITY

Halifax/Dartmouth

Halifax/Dartmouth is the economic centre of Eastern Canada. After being fairly flat in 2023 GDP growth in 2024 is projected to be 2.1 per cent with a slight uptick in employment. The economy in Halifax continues to expand into new sectors and the post-secondary institutions are bringing additional recognition to the area. As with many other markets, visitation levels in 2023 are projected to exceed 2019 and while total expenditures are up as well, the U.S. and overseas markets have not fully recovered.

The accommodation market in Halifax/Dartmouth saw occupancy recover beyond 2019 levels in 2023 at 71 per cent. The strong demand growth and high levels of leisure travel drove a significant improvement in ADR which was up 14 per cent to $206. Overall, the market saw RevPAR improve by 22 per cent or $27 in 2023 to $147.  

A more muted performance is expected in 2024, with RevPAR in the Halifax/Dartmouth market projected to remain flat at $147. Demand is expected to be up by about two per cent, which will be outpaced by nearly five per cent supply growth eroding occupancy by two points to 69 per cent. ADR growth for the market is expected to be solid at three per cent, helping to stabilize RevPAR in 2024. 

HALIFAX/DARTMOUTH

St. John’s 

Economic activity in St. John’s is driven by the region’s focus on natural resources, specifically offshore oil and gas development. Additionally, since St. John’s is the capital city of the province, it provides a significant amount of the consumer and government services for residents. GDP growth was solid in 2023 at 2.2 per cent and is projected to be 2.1 per cent for 2024. Provincial visitation in 2023 was just below 2019 levels and is expected to exceed these in 2024. As a highly seasonal and less leisure driven market domestic travel makes up the bulk of the visitation to the province with only a minor amount of U.S. and overseas visitation. 

In 2023, the St. John’s market saw a dramatic increase in the top-line performance metrics driven by non-traditional demand sources, specifically the Ukrainian refugee program. The market finished with a RevPAR of $112 based on a 73 per cent occupancy and an ADR of $154. This represents the strongest RevPAR performance for this market since 2013/2014. 

Since the beginning of the year the market has experienced month-over-month contractions in the occupied room night demand with the absence of the non-traditional demand that buoyed the market last year. As a result, it’s projected that market demand will contract by 12 per cent in 2024 with occupancy falling eight points to 65 per cent. Even with the contraction in demand the market is seeing strong ADR growth which is expected to continue through the summer months with leisure travellers. While the market is projected to realize six-per-cent growth increasing ADR by $9 to $163, the decline in occupancy is expected to outweigh this, resulting in RevPAR contracting by five per cent or $6 to $106.

St. JOHN’s

* All projections are rounded.

National Market Outlook

The projections for the national accommodation market are a roll up of the projections completed for the various major markets as well as the provinces and territories across Canada considering the various economic, travel and supply and demand dynamics at play. While the national forecast provides a macro, directional indication of industry performance, there are numerous factors that will impact the recovery and performance of individual markets, such as, supply, the sources/mix of guestroom demand and seasonality which impact the performance results for 2024 and beyond.   

After increasing by 0.7 per cent in 2023, national accommodation supply is projected to increase by another 0.6 per cent in 2024. In the coming years as the pace of new build projects picks up with the improved market operating conditions and financing environment as well as some easing of construction costs and supply-chain issues supply growth should return to levels more consistent  with the long run average.

Following the almost 11 per cent demand growth last year, challenging conditions in some markets, along with only moderate demand growth in others, are projected to result in national accommodation demand remaining essentially flat to 2023. With supply ever so slightly outpacing demand growth in 2024, national occupancy is projected to drop one point to hold at 66 per cent.

Nationally, the rate growth has been solid through the first half of the year, and this is expected to be the case for the rest of the year. National ADR is projected to grow by 3.5 per cent in 2024 and increase by $6 to $203. With occupancy expected to hold in 2024, RevPAR growth of three per cent is projected to be driven by the improvement in ADR. National RevPAR is projected to increase to $133, up $4 from 2023.

National