Since the debt crisis hit the CANADIAN LODGING MARKET in 2009, causing a 12.3% contraction in RevPAR, the industry has been on an upward trajectory. In fact, RevPAR growth has been registered for 106 consecutive months—the longest period of sustained growth on record. In 2017, the RevPAR increased by 7.7%, fuelled by a 5.2% increase in ADR and a 3.2% gain in demand, supported by limited supply growth of just 0.8%.

The three airport markets in Montreal, Toronto, and Vancouver led the country in rate increases in 2017 with growth of 11.8%, 11.6%, and 10.4%, respectively. The other markets registered more moderate ADR growth in 2017, the only exceptions being Saskatoon and Regina, which both experienced a 5.3% rate decline, and Calgary, which sustained a 1.5% drop in ADR.

The value of a hotel room in Canada increased by 8.0% to $133,389 in 2017, up from $123,427 in 2016. This is slightly less than the value per room of $134,800 that was projected for 2017 in the previous HVI report, reflecting the fact that the rebound in Alberta and Saskatchewan has been slower than anticipated.

The economic indicators for Canada are positive for 2018, especially with the rebound of the oil and gas sector. The increase in oil prices has been stronger than expected, which has positively affected exports. The national GDP is expected to finish the year up by 1.9% in 2018, following on the stronger increase of 3.0% that was realized in 2017.

The Canadian lodging market is expected to finish 2018 in an even stronger position. Based on the performance thus far, demand is projected to grow at twice the rate of supply, supporting a 5.6% increase in RevPAR, which is projected to exceed the $100 mark for the second consecutive year hitting a new record of slightly over $109.

The national per-room value is expected to increase by 7.5% in 2018, which is slightly lower but nonetheless in line with the rate of growth that the market experienced in 2017. The impressive growth in the Toronto Airport West, Toronto Downtown, and Vancouver Downtown markets has contributed significantly to the improvement at the national level. For each of these three markets, the per-room value is expected to increase by approximately 20% in 2018.

While the Vancouver and Toronto Downtown markets have long been at the top of the value rankings, airport markets are proving to be the most upwardly mobile, in part because they are benefitting from the compression taking place in downtown markets. In 2014, the Toronto Airport West market was ranked seventeenth out of 19 markets, just above the Montreal Airport market. Three years later, the Montreal Airport market was up four spots in the ranking while Toronto Airport West was up by nine. Even though the Montreal Airport market is still in the bottom half of the ranking, it realized the strongest increase in per-room value in 2017 at 31.4%.

Halifax, Montreal Downtown, and Quebec City have also sustained notable increases in value. These three markets were below the national average in 2016 and entered the top ten in 2017.

What does 2019 hold?

Canada is projected to sustain a 2.0% increase in GDP in 2019, led by resource-based markets, which are seeing the strongest growth because they are still in the process of recovery.

The national per-room value is projected to increase by close to 5.0% in 2019, bringing the per-room value up to $150,200. This is two percentage points higher than the increase that was projected in the previous HVI report.

In 2019, the national room supply is expected to increase by 1.7% (or by 8,067 rooms), the highest increase since 2005. It should be noted that this figure does not consider any supply being taken out of inventory and being converted to alternative uses, most commonly residential. In Downtown Toronto alone, there is significant inventory that is expected to come out of the market in the near future. Since the Vancouver and Toronto (Downtown and Airport) markets have strong barriers to entry, the largest supply growth will take place in less-saturated primary markets: Calgary, Ottawa, Edmonton, and Montreal will account for one-third of the new supply. Supported by the weak Canadian dollar and the strengthening of the US economy, demand is nevertheless projected to grow at a stronger pace, bringing the national occupancy to a new high of 67%.

Strong operating performance is fuelling transaction activity

Canada had a very strong year for transaction activity in 2017. The market finished with $3.5 billion in transaction volume, the third highest on record. Robust transaction activity has continued this year, albeit at a slightly less aggressive pace. By year’s end, the transaction volume is projected to be somewhere between $2.0 to $2.5 billion.

Foreign buyers are actively investing in the Canadian lodging market; Asian capital in particular is flowing into the country. Despite the overseas investment regulations that the Chinese government issued to control outbound capital in the real estate and hotel industries, cross-border capital from China continues to account for a significant portion of the transaction volume. In 2018, there has been a slowdown in Chinese capital investment in the Canadian lodging market; however, South Korean investors with a taste for large assets are now aggressively moving into the market, picking up the slack.

The transaction activity in 2017 included several large transactions, including the sale of the SilverBirch Hotel Portfolio for $1.1 billion in February to Leadon Investment. In December, Silver Hotel Group bought seven properties from the SilverBirch Portfolio for $150 million from Leadon Investment. Other notable transactions from that year include the Edward Hotel GTA Portfolio—two properties valued $75.8 million—and three boutique hotels in Edmonton collectively valued at $65.6 million.

According to Colliers Hotels, Ontario remained the top spot for hotel investment in 2017, followed by Vancouver and Montreal. As per the same source, the transaction volume in Canada for year-to-date through July 2018 was $800 million, representing 70 hotels that transacted at an average guestroom price of $93,100. Of these transactions, 34 occurred in Western Canada while 36 took place in Eastern Canada. However, Eastern markets grabbed 70% of the total investment volume. With the sale of the Le Centre Sheraton Hotel and the Marriott Chateau Champlain in Montreal and the Delta Quebec in Quebec City, the investment volume in the province of Quebec outpaced that of Ontario.

The outlook for hotel transaction activity in Canada is positive given the persistence of the weak Canadian dollar, the favourable investment environment for foreign capital, the rebound that is underway in energy-dependent markets, and the expected improvements in the energy and export sectors that the historically low cost of debt is supporting. Unforeseen challenges may of course arise at any time, especially given the possibility that global trade wars could escalate; nevertheless, all indicators are pointing toward an extremely favourable outlook for hotel transaction activity in Canada.

2018 HVI Highlights

The Hotel Valuation Index (HVI) is a metric used for tracking hotel values for 19 markets across Canada, including Canada as a whole. It is based on market performance and overall hotel profitability margins, as well as the current lending environment and the appetite for hotel acquisitions.

The HVI shows that the Canadian lodging market saw a 8.0% increase in hotel values in 2017 and that an additional 7.5% increase is taking place 2018. The national per-room value is projected to steadily increase over the next three years.

Of all the markets, Montreal Airport realized the highest growth in hotel value in 2017 with an increase of 31.4%; this was the strongest increase realized in any market in the last eight years. Toronto Downtown followed in second place with growth of 27.2% while Montreal Downtown registered a 26.1% increase, pushing the Vancouver Downtown market out of the top three markets for growth. At the other end of the spectrum, Regina suffered the largest decrease in hotel value in 2017 with a drop of 23.5%. Other markets, such as Winnipeg, Saskatoon, Newfoundland, and Edmonton, also sustained a decline in value in 2017, but to a lesser degree.

For 2018, the HVI indicates that Toronto Airport West has snatched the first-place position for growth with a projected increase of 25.1%; this market has been booming since 2016 and is expected to reach the top four in the value ranking by 2021 with a per-room value of $260,792. Toronto Downtown is projected to remain in second place in 2018 in terms of value growth with an increase of 22.9%, but this market is nonetheless still below the Vancouver Downtown market in terms of actual per-room value. Vancouver Downtown is projected to realize the third-strongest growth in value in 2018 with a 20.6% increase.

Change In Value For Market: ($CAD)

Legend
Significant Value Increase: Greater than +10%
Moderate Value Increase: Between +3% and +10%
Stable Values: Between -3% and +3%
Moderate Value Decline: Between -3% and -10%
Significant Value Decline: Less than -10%

Canada RevPAR Change ($CAD)

Canada RevPAR ($CAD)

Year RevPAR
2006 $80.45
2007 $83.90
2008 $84.69
2009 $74.19
2010 $78.34
2011 $79.18
2012 $81.06
2013 $84.23
2014 $89.19
2015 $92.29
2016 $96.08
2017 $103.29
2018 (f) $109.08
2019 (f) $114.30
2020 (f) $118.98
2021 (f) $123.21

For more information, please contact:

Monique Rosszell, AACI, MRICS, ISHC
[email protected]
  • +1 416 686-2260 (w)