Record Hotel Performance to Drive New Construction in 2019, According to CBRE Forecast
13 May 2019
Nationwide hotel investment volume is expected to exceed last year's total, and RevPAR is projected to grow 4.0%
CBRE Hotels forecasts that the new supply of hotel product will increase by 2.0% in 2019, marking the highest single year of supply growth in the Canadian hotel market since the financial crisis of 2008. This will be driven by owners who are flush with capital pursuing new-build development opportunities in the suburbs of Canada's largest cities, where land acquisition and development costs remain reasonable.
And with several hotels and portfolios currently for sale, CBRE further predicts that 2019 hotel investment volume will exceed last year's total of $1.5 billion, and surpass the 10-year average of $1.8 billion. Domestic and foreign investors — seeking a safe haven amid global economic uncertainty — continue to show strong interest in acquiring hotels in Canada.
With strong tourism and business travel, CBRE expects that RevPAR, the hotel industry's key metric of revenue per available room, will rise 4.0% in 2019. Toronto in particular continues to be a bastion of stability and economic vibrance. This is producing robust business activity and commercial real estate fundamentals — namely the lowest office vacancy in North America — bolstering confidence in the hotel market.
"Canadian hotel operating performance and investment metrics have never been stronger, and all indications point to investment volume matching if not exceeding historical averages in 2019," said Bill Stone, Executive Vice President, CBRE Hotels. "The only factors that cause significant shifts in the hotel market are either geopolitical events — such as 9/11 and the global financial crisis — or the delivery of new hotel supply, which is what we are predicting we will see this year. New supply is a good challenge to have as it reflects the strength of the market and Canada's ability to compete on the world stage."
Here's what other trends CBRE will be watching for in 2019:
- Mixed-use commercial projects with a hotel component should continue to draw attention from a variety of investors beyond traditional hotel owners and developers. Notable new projects include Four Seasons Hotel Montreal (which opened May 2019) and Riu Plaza Hotel Toronto (slated to open in 2021).
- Central Canada will lead the Canadian hotel market in 2019. The region accounted for over 60% of total hotel transaction volume in 2018 — with Ontario representing 69% of the deals in the region ($641 million), and Quebec following at 31% ($293 million).
- Alberta's hotel market continues to experience challenges in the wake of the province's economic downturn, but Edmonton and Calgary are beginning to develop green shoots, and supply and demand growth in Alberta in 2019 are projected at 0.7% and 1.0% respectively.
- New supply will shift to smaller cities in 2019. Hotel supply will be increasingly constrained in the country's major markets due to a lack of availability and affordability in the urban core, development costs rising faster than RevPAR growth in many markets, and further widening of spreads in the debt markets.
"The hotel industry in Canada is performing at all-time highs, with record occupancy, average daily rates and RevPAR, as well as bottom-line performance," noted David Larone, Senior Managing Director, CBRE Hotels. "Our hotels are full, and we are in good shape to continue to grow top and bottom lines in 2019."
CBRE Canada's 2019 Hotels Outlook report can be downloaded here.
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