For the past few years, the hotel industry has enjoyed strong market fundamentals driven by solid ADR and occupancy rates, creating a positive investment environment. And while the pandemic certainly decimated the industry in 2020, as soon as consumers got the go ahead to travel once again, the rebound was quick and dramatic.
But while the investment outlook in recent years has been favourable, there are some areas that have taken a bit longer to recover. For example, according to the 2023/24 Canadian Lodging Overview, produced by Cushman & Wakefield, there’s been a slowdown in new hotel openings over the last three years. But the report does note that, “With strong market results, improvements in supply-chain issues, and moderation of costs, new and postponed projects are now beginning to move forward.”
Additionally, “New hotel room openings in Canada declined from 4,349 in 2021 to 3,319 in 2022 and 3,237 in 2023,” representing annual supply growth of one per cent, 0.7 per cent and 0.7 per cent respectively.”
The report cites estimates from STR that show 4,173 new rooms will open in 2024 (0.9 per cent growth). “The number of rooms in construction trended downward from mid-2021 to mid-2023. However, activity increased in the second half of 2023. Meanwhile, the number of rooms in planning steadily increased from 22,548 in Q1 2021 to 29,309 in Q3 2023. Rooms in planning has surged to 36,497 in Q4 2023 — well above pre-pandemic levels.”
Based on the report, as of December 2023, 57 per cent of the national pipeline rooms were in Ontario, with British Columbia a distant second at 21 per cent. At the market level, Toronto accounted for 18 per cent of the national pipeline rooms, followed by Ontario Central at 13 per cent and Vancouver at 11 per cent. By chain scale, upper midscale and upscale accounted for three per cent and 19 per cent of rooms in the national pipeline, respectively. The current national pipeline (in construction and in planning) represents nearly 10 per cent of Canada’s existing hotel-room supply.
On the transactions front, the report shows that in 2023, Cushman & Wakefield tracked more than 125 transactions, which accounted for an estimated $1.6B in total sales volume, compared to more than 160 transactions at similar total volume in 2022. The sale of several larger, prime assets located in urban and resort markets, such as the Rimrock Resort in Banff, Alta. (330-room, $170M), the Hazelton in Toronto, (77-room, $110M), the Marriott in Ottawa, (489-room, $86.5M) and the InterContinental in Montreal, (357-room, $80M) led to a new record for average price-per-room transacted, reaching $180,000 per room in 2023.
Interestingly, transactions for ongoing hotel uses accounted for 88 per cent of the total activity in 2023. Sales of hotels being sold for alternate uses, which was notable in 2022, has slowed to about eight per cent of overall volume in 2023. Distress sales continue to be a relatively small part of the overall sales activity.
