Escalating Fundamentals and Abundant Debt and Equity Underpin Investor Appetite for Canadian Hotels

CBRE forecasts Canadian hotel investment to remain at recent peak trading levels backed by solid increases in national operating income of almost 16% in 2017

Toronto, ON – March 29, 2018 – Strong investor demand for Canadian hotel assets is projected to continue in 2018 underpinned by robust operational performance, according to CBRE Canada’s 2018 Hotels Outlook Report. In 2017, hotel investment volume reached $3.4 billion and while down from $4.1 billion in 2016, both years were heightened by significant entity-level/M&A deals that had not been a factor for over a decade. When entity-level/M&A activity is excluded, the $2.3 billion of traditional volume in 2017 rivalled the prior peak set in 2015 and far exceeded the 10-year average of just $1.4 billion.

“Last year was another year of landmark hotel transactions. We saw the sale of the Sheraton Centre Hotel in Toronto for $335 million, the largest ever single hotel transaction in Canada, and Hong Kong’s Leadon Investment Inc.’s acquisition of bcIMC’s SilverBirch Hotels & Resorts portfolio for $1.1 billion, to name just two. A new luxury pricing threshold was also set with the sale of the Rosewood Hotel Georgia at $930,000 per room. The major components of the Canadian hotel market are synchronized and this positive momentum is carrying through to 2018,” commented Bill Stone, Executive Vice President of CBRE Hotels Capital Markets Group in Canada.

Besides Ottawa, for which cap rates, the commercial real estate industry’s measure of rate of return, remained stable, all major markets across the country experienced downward pressure on cap rates year-over-year. “Of note was Montreal’s position as a desirable urban alternative from competition heavy Toronto and Vancouver. Also, buyers did not double punish weak market performance in Alberta with high yield expectations, and instead priced on a per room basis with lower initial yields,” added Stone.

Exceptionally strong industry fundamentals continue to attract capital domestically and from around the globe, including national accommodation demand growth of 4.1% and an increase in revenue per available room (RevPAR) of over 8% in 2017 to $102. This in turn has supported rising profits, nationally increasing almost 16% in 2017 to $14,300 per available room, with British Columbia leading at $23,600.

“Over the last year, Canada’s hospitality industry has benefited greatly from several factors, including low interest rates, the lower Canadian dollar, continued economic growth driving business travel, and increased domestic and international tourism. For 2018, we are expecting to see an increase in conference and convention activity in the country’s major metropolitan markets and these solid fundamentals will continue to support demand for hotels,” said David Larone, Senior Managing Director of CBRE Hotels Valuations and Advisory Group in Canada.

In 2018, each Canadian region is anticipated to experience positive operating fundamentals. Central Canada will lead the country in RevPAR growth, which is forecasted to increase 4.6% to $115 in 2018, followed by Western Canada increasing 4.2% to $100. Atlantic Canada will see a modest uptick in RevPAR as well, rising 2.3% to $88. In terms of profits, Western Canada will lead the pack with an increase of 7.3% to $16,100 per room, followed by Central Canada with an increase of 9% to $15,700 and Atlantic Canada with an increase of 4.9% to $10,800.

A full copy of CBRE Canada’s 2018 Hotels Outlook Report can be downloaded here.


About CBRE Group, Inc.
CBRE Group, Inc. (NYSE:CBG), a Fortune 500 and S&P 500 company headquartered in Los Angeles, is the world’s largest commercial real estate services and investment firm (based on 2016 revenue). The company has more than 75,000 employees (excluding affiliates), and serves real estate investors and occupiers through about 450 offices (excluding affiliates) worldwide. CBRE offers a broad range of integrated services, including facilities, transaction and project management; property management; investment management; appraisal and valuation; property leasing; strategic consulting; property sales; mortgage services and development services. Please visit our website at www.cbre.com.

 
In Canada, CBRE Limited employs over 2,000 people in 22 locations from coast to coast. Please visit our website at www.cbre.ca.