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Due to strong tourism, new hotel building boom expected in Canada: report

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Kenneth Chan Apr 23, 2019 8:20 pm 160

Commercial real estate analysts are giving Canada’s hotel industry a very positive outlook for the foreseeable future.

According to Colliers International’s new 2019 Canadian Hotel Investment Report, the Canadian hotel industry is currently amidst one of the most profitable periods for hotel owners in the last 30 years.

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This is due to record operating metrics, a low Canadian dollar, financing costs at historical lows, and active construction plans.

In fact, the hotel industry is currently eight years into the upswing cycle and has been deemed in an “enviable position” that continues to entice interest from global investors.

An average of over $2 billion per year in investment is being experienced, and the value in acquisitions now sustains over $1 billion per year, with $1.5 billion worth in Canadian hotel real estate changing hands in 2018. Furthermore, up to $2 billion in hotel property activity is expected this year.

“We’re seeing a trend towards limited service hotels, representing the lion’s share with 70% of deals this year, over more traditional full-service hotels,” said Alam Pirani, executive managing director of Colliers International Hotels, in a statement.

“Investors are also showing heightened interest in secondary and tertiary markets like Kitchener-Waterloo, Quebec City, Windsor, Sudbury, and Kelowna, which are now providing superior returns compared to the traditionally strong markets in Vancouver and Toronto.”

Last year, the accommodations sector in Canada benefited from new records in international arrivals reaching 31.2 million in overnight trips, with robust revenue per available room (RevPAR) growing by 5.3% and strong capitalization rates year-on-year averaging at 7.3%.

During the same period, new hotel supply increased by 1.4% in 17 major Canadian markets — up from 1% and 0.3% in 2016 and 2017, respectively.

Colliers is project a surge in hotel development with national new supply growth reaching 2% this year — double the average of 1% per year.

Up until 2016, foreign investment was the leading driver for hotel real estate activity, but the current marketplace is now dominated by domestic investors.

In 2018, Eastern Canada accounted for 64% of national hotel real estate sales volumes, with Ontario as the most active province with 42 deals and $612 million in volume and Quebec experiencing a tripling of sales year-over-year to $303 million.

Western Canada lags with a 30% increase in the number over deals over the previous year, largely due to the continued economic uncertainty in Alberta.

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