We recently attended the CoStar Hospitality Outlook webinar and what follows are the main points we took away. As we step into the heart of 2024, the Canadian hospitality industry finds itself at a fascinating crossroads. Despite economic headwinds, shifting consumer behavior, and a global recession on the horizon, the outlook for Canada’s hotels remains surprisingly optimistic. Let’s delve into the key trends shaping the landscape and explore the opportunities that lie ahead.
Record RevPAR and Resilience
Revenue per available room (RevPAR) in Canada soared to unprecedented heights in 2023, defying economic slowdowns and uncertainties. The pandemic may have disrupted travel, but Canadians and international visitors alike continue to seek memorable experiences. As the recession looms, people are prioritizing these experiences more than ever before. Hotels, once merely places to rest, now serve as alternative housing options, meeting the evolving needs of travelers and locals alike.
Steady Occupancy Rates Amidst Uncertainty
While the economy grapples with recessionary pressures, hoteliers can take solace in the resilience of occupancy rates. The demand for hotel stays remains robust, driven by both leisure and business travelers. The unique dynamics of this recession—where experiences trump material possessions—have positioned hotels as essential components of the travel ecosystem. Whether it’s a weekend getaway or a business trip, hotels continue to play a vital role.
The Seller’s Advantage
Mark Kay, president of CFO Capital, succinctly captured the financial landscape: “It’s a good time to sell if you are a seller.” The scarcity of available hotels for sale has created a seller’s market. Few properties have changed hands in recent years, and the rising costs of construction make acquisitions more appealing than new developments. If you’re a hotel owner contemplating a sale, seize the moment—the deals are scarce, but the demand is high.
Condo Developers and Hotel Integration Opportunities
The economic benefit of building higher condo towers has spurred a growing trend of developers seeking hotel management partnerships. As cities encourage mixed-use developments, developers face a unique challenge: integrating hotels into their condo projects. The mandate is clear: “You can have your 60 stories, but you need to include a hotel.” However, many developers lack expertise in the hotel business. This gap presents an opportunity for savvy professionals to bridge the divide and create synergies between residential and hospitality spaces. One example is Sunray Groups planned development at 22 Metropolitan Road, containing six buildings ranging from 12 to 48 storeys, including a new hotel and seniors’ residence. Sunray already has a portfolio of hotels under management, however SmartCentres, one of Canada’s most well known retail REITs will be incorporating hotels into their Park Place condo buildings at Vaughan’s Metropolitan Centre.
Recent Transactions
InnVest Hotels’ successful acquisition of the Morguard hotel portfolio, with 10 Ontario and Halifax Hotels effective January 18, 2024 is the most notable hotel transaction of late. The high-quality portfolio includes a mix of focus service, extended-stay and full-service hotels with 1,737 guestrooms and 40,000 square feet of meeting and convention space. Acquired hotels include Marriott Toronto Airport, Courtyard Toronto Airport, Residence Inn Toronto Airport, Hotel Carlingview, Courtyard Vaughan, Courtyard Markham, Residence Inn Markham, Townplace Suites Sudbury, Cambridge Suites Halifax and The Prince George Halifax. Aside from the Marriott Toronto Airport, which will continue to be managed by Marriott Hotels, the hotel portfolio will be managed by iHotels. The acquisition will grow InnVest’s Marriott branded franchise and managed portfolio to 14 hotels making them one of the largest owners of the brand in Canada. The transaction was completed for $410M which is an average of $236k per key. Morguard had $48.7M of first mortgage debt outstanding at the time of the sale.
New Players, New Prospects
The hotel acquisition market is witnessing a fresh influx of players from diverse sectors. Real estate asset managers, retail giants, industrial conglomerates, and even construction companies are eyeing hotel investments. These newcomers bring fresh perspectives and capital, creating a dynamic environment ripe for collaboration. If you’re an investor seeking opportunities, look beyond traditional boundaries—your next venture might lie in the hospitality sector.
Kingston’s Quandary
In the charming town of Kingston, we’ve been exploring opportunities. One intriguing find: a property with 22 rooms on Bath Road, nestled on 0.7 acres. While expanding the room count is challenging due to limited parking space, an alternative vision emerges—a senior home. With minimal parking requirements, this pivot could transform the property into a haven for retirees seeking comfort and care.
In conclusion, Canada’s hospitality industry stands at the intersection of innovation, demand, and adaptation. As the recession knocks on our doors, let’s embrace the opportunities, reimagine spaces, and create experiences that resonate with travelers and locals alike. The journey ahead promises both challenges and triumphs—let’s navigate it together.
