For a comprehensive review of the Canada market, click below:
HVS In-Depth Canada Hotel Valuation Index:   2019 | 2018 | 2017 | 2016 | 2015 | 2014 | 2013

2019 In Review

At the close of 2019, the Canadian lodging market saw a marked slowdown from the average 5.0% annual RevPAR growth experienced in the previous six-year run. In fact, in 2019 the RevPAR contracted by 0.2% after a very strong historical run; several factors contributed to this softer market. Although new supply growth nation-wide was moderate at 1.5% in 2019, this growth is approximately double that of the average of the same previous six years. Demand grew only 0.1%, which coupled with the additions to supply, resulted in the 1.3% decline in overall occupancy. The average rate increased 1.2% last year, significantly smaller growth in contrast to the average rate growth of about 4.0% in the prior six-year run.

What does this mean? By the fourth quarter of 2019, this marked slowdown in both demand and rate growth was being experienced globally, however there were a few additional homegrown contributors in Canada. Lodging demand has been heavily impacted by the oil crisis in our three resource-based provinces, thereby depressing the national average. On the other hand, the consistent impressive growth in the main urban/airport markets in Canada, namely Vancouver, Toronto and Montreal has been a driving force in the national level of growth and helped mitigate the impact of softer resource-based markets across the country. Canada has caught international investment interest and we are seeing significant new brands entering our urban markets. New supply was notably stronger than in recent years which takes time to be absorbed by the markets but then bolsters rate growth once absorbed.

What does 2020 hold?

The COVID-19 pandemic has dramatically altered the outlook for travel activity globally in 2020 and has knocked the global economy into a recession. The coronavirus crisis has led to a significant reduction in both international and domestic travel and created a widespread economic uncertainty. The impact of COVID-19 on the tourism and travel industry and the overall economy will be severe in the near term, and the duration of the impact will depend on the course of the pandemic and the extent and duration of travel restrictions that are taking place in Canada and around the world. As of May 2020, we have seen economies worldwide begin to open in phased approaches. In spite of this, the decline in global travel will exceed that of prior pandemics and recent recessions. The pandemic has spread to many key international feeder markets for Canada and the uncertainty surrounding the duration of present travel restrictions is expected to reduce transborder and international travel, which usually requires greater lead time in booking and travel planning. Once the COVID-19 pandemic has run its course, business and leisure travel is expected to recover quickly but remain subdued because of the headwinds facing the economy and the resulting potential high unemployment as well as  the ongoing collapse in oil prices which is amplifying economic hardship in  energy-producing provinces. Travel demand from overseas source markets will remain soft because of unfavourable economic conditions, low consumer confidence, and general rise in the fear of travel. Consumer spending, which has been a key driver of growth for the national economy over the past few years, will contract in 2020 given the pandemic has shut down businesses and created mass unemployment. There is consensus that the crisis is unprecedented and that it will have a significant adverse effect on the domestic economy. Overall, the economic and travel outlook is highly pessimistic for 2020; however, the overall attractiveness of Canada for international investment remains elevated, and efforts at all levels of government to expand the economy and resume business as quickly as possible bode well for long-term growth.

Even though the pace and degree of the COVID-19 downturn is unprecedented, the hospitality industry will recover. Our occupancy forecast anticipates a rebound in demand once travel restrictions are lifted, the virus is contained, and consumers resume business and leisure travel. The ADR will take longer to recover than in prior cycles given the magnitude of the rate declines seen across the country, and as hotels use price as a marketing tool to stimulate demand recovery and attract guests. In addition, the availability of the shadow supply (Airbnb, etc.), which was not a factor in prior cycles, will also influence ADR recovery.

Prior to the onset of the pandemic, the gross national room supply was expected to increase by 1.9% (over 9000 rooms) in 2020, the highest increase since 2005.  Current market conditions will likely lead to delayed openings of hotels currently under construction, some projects may be placed on hold, and some proposed projects may be rendered infeasible; as a result, we anticipate that many hotel projects may be postponed or cancelled. In addition, financing challenges will delay construction start dates. The debt market has already pulled back from the hotel sector, with lenders reporting lower loan-to-value ratios and/or higher spreads that could result in higher interest rates, despite the cuts by the Bank of Canada. Lastly, some existing properties that had to suspend operations to minimize EBITDA losses may not reopen, potentially resulting in a much smaller or even negative supply growth this year.

With the uncertainty and economic fallout from the global COVID-19 pandemic, it is highly likely that transaction activity will decline in 2020. It will be a challenge for investors to determine the impact of the crisis on income levels, which will undoubtedly have a cooling effect on transaction volume. The sharp top-line revenue declines will result in even more significant decreases in EBITDA for Canadian hoteliers this year, with the real possibility of negative EBITDA in the near term. Well-capitalized buyers should be in a position to acquire hotels at prices well below both replacement cost and recent norms, creating an opportunity for high returns.

As in prior cycles, hotel values are anticipated to have declined sharply and will remain depressed in the near term. In order to combat the decrease in  value due to lower projected EBITAs, exposure time on the market will need to be lengthened.  The hotels with the most volatile value declines will be full-service properties dependent on group business, gateway markets dependent on international travel, airport markets, and markets influenced by energy sectors. The hotel value declines are expected to be slightly less severe in the economy and midscale hotel segment, for extended-stay properties, in drive-to markets and resorts, and properties that rely primarily on transient demand. Over the longer term, values will recover as cash flows improve and capital markets return to more traditional parameters. The aforementioned factors translate into hotel values declining significantly in 2020, with growth resuming in 2021.


Change In Value For Market: ($CAD)

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: More than -10%

For more information, please contact:

Monique Rosszell, AACI, MRICS, ISHC
Senior Managing Partner, AACI, Montreal and Toronto
[email protected]
  • +1 416 686-2260 (w)
  • +1 514 776-7099 (m)
  • +1 416 704-3883 (m)