The Canadian hotel industry has shown remarkable resilience and recovery in 2023, surpassing the pre-pandemic levels of performance in terms of occupancy, average daily rate (ADR), and revenue per available room (RevPAR). According to CBRE’s new hotels market outlook, the sector is expected to continue its growth and stability in 2024, driven by strong demand from domestic and international travelers, especially in the leisure and group segments. This presents a favorable opportunity for real estate investors who are looking for attractive returns and long-term value in the hospitality sector.
The key factors that support the positive outlook for the Canadian hotel industry in 2024 are:
Limited supply growth
The hotel supply growth in Canada has been below the historical average of 1.5% since 2020, due to the pandemic-related disruptions and challenges in construction and financing. In 2024, the supply growth is projected to be only 0.9%, which means that the existing hotels will face less competition and enjoy higher occupancy and rate levels.
Diversified demand sources
The Canadian hotel industry benefits from a balanced mix of demand sources, including domestic leisure, domestic business, international leisure, and international business. In 2024, all these segments are expected to grow, with the leisure and group segments leading the recovery. Domestic leisure travelers will continue to explore the country’s diverse destinations and experiences, while international leisure travelers will return to Canada as travel restrictions ease and vaccination rates increase. The group segment, which includes conferences, conventions, and events, will also rebound strongly, as more organizers and attendees resume their face-to-face meetings and networking activities. The business segment, which has been the slowest to recover, will also improve gradually, as more companies adopt hybrid work models and encourage their employees to travel for essential purposes.
Strong performance metrics
The Canadian hotel industry is projected to achieve a national RevPAR of $133 in 2024, a 4% increase from 2023 and a 25% increase from 2019. This growth is driven by both occupancy and ADR gains, as hotels are able to leverage the high demand and limited supply to optimize their pricing strategies. The national occupancy rate is expected to reach 69% in 2024, the highest level since 1998, while the national ADR is expected to reach $193, a new record high. The performance metrics vary by market, but most of the major markets are expected to see RevPAR above $100 in 2024, with Vancouver, Montreal, and Toronto leading the pack.
These factors indicate that the Canadian hotel industry is well-positioned for growth and profitability in 2024, which creates a compelling case for real estate investors who are interested in acquiring or developing hotel assets in the country. The hotel investment market in Canada has been relatively subdued in 2023, with only $1.2 billion worth of transactions, a 42% decline from 2022. This is mainly due to the mismatch between the expectations of buyers and sellers, as well as the uncertainty and volatility in the macroeconomic environment. However, as the hotel industry stabilizes and grows in 2024, more hotel owners may be willing to sell their properties at attractive prices, while more buyers may be able to secure financing and capital for their acquisitions. Moreover, the hotel development pipeline in Canada is expected to remain low in the next few years, which means that there will be less competition and more opportunities for new hotel projects in the market.
Therefore, real estate investors who are looking for a lucrative and resilient asset class in 2024 should consider the Canadian hotel industry as a viable option. The industry has demonstrated its ability to recover from the pandemic and achieve strong performance levels, supported by a favorable supply-demand balance and a diversified demand base. The hotel investment market in Canada also offers a window of opportunity for investors who are seeking to enter or expand their presence in the hospitality sector, as more hotel assets become available for sale or development at reasonable prices and terms. By investing in the Canadian hotel industry in 2024, real estate investors can benefit from the industry’s growth potential and long-term value creation.
