Hotel Developers Finding Opportunities in Suburbs: Flood
Canadian hotel development activity remains quiet in downtown areas, but developers are finding opportunities elsewhere, says the head of Cushman & Wakefield’s hospitality research group.
“We’re still not seeing a lot in city centres,” said Brian Flood in an interview. “But in certain suburban and secondary markets, we are seeing developments.
“In some markets, particularly secondary and tertiary markets, there’s a lot of markets where there hasn’t been a hotel built in a couple of decades. What we see are developers finding those opportunities to go into a market to deliver a new hotel. And typically, those hotels will do quite well because it’s newer. It’s a better quality product than what’s in the market currently.”
In major markets, some investors and developers are opting to redevelop older hotel sites rather than launch new builds.
“We have seen it and I think we’ll continue to see it,” said Flood.
The lack of new product development stems from a shortage of available land in major markets.
“The biggest barrier right now in a lot of markets is just the cost of land,” said Flood. “When you look at markets like [the Greater Toronto Area cities of] Markham or Mississauga, for example, there’s a scarcity of land, and land is also very expensive.
“Though that’s the biggest challenge, I think the market numbers will support new development. A lot of the [current development] situations we see are where somebody acquired that land some time ago at a lower price. So, the economics make sense, because they had that land at a lower price. But I think, in the current market, land is increasingly a challenge.”
He predicts that future development will depend largely on the specifics of each market.
Flood based his comments on findings from Smith Travel Research, which Cushman & Wakefield extrapolated in its second-quarter hospitality insights.
According to the Cushman report, Canadian hotel occupancy is moderating as hotel operations return to more typical supply and demand fluctuations following the COVID-19 pandemic. Overall hotel performance remained relatively modest in the first half of 2024, but some markets experienced declines in revenue per available room (RevPAR.)
Prince Edward Island saw a 14% year-over-year drop after a strong showing due to “abnormally high demand” in the first half of 2023. Meanwhile, Newfoundland and Manitoba saw a slight decline in RevPAR due to lower demand, while B.C. and Nova Scotia were able to offset RevPAR drops with a higher average daily rate (ADR) in both provinces.
But Alberta, Saskatchewan and New Brunswick posted the strongest RevPAR growth, at 6.2%, due to higher occupancy and ADRs. The national ADR rose 4%.
“Overall, we have seen demand growth level off a little bit,” said Flood. “We’re not seeing as strong growth in the demand part. Some markets are doing better than others. So, we have seen a little bit of softening in some areas in terms of demand, but the [room] rates are still going up.
“What we’re hearing is that some leisure demand has begun to fall off a little bit.”
Cushman & Wakefield attributes that situation to a return to normal conditions after demand spiked in the post-pandemic period.
“Now, that’s begun to normalize a little bit,” he said. “We are still seeing some growth in corporate demand, although that’s been a very long, drawn out process. We’re not really sure that we’ll see the same level of corporate demand that we did before COVID.
“In other words, I think business travel going forward will continue to be impaired.”
But the market is seeing good growth in group travel related to large meetings and conventions.
“I think part of that is driven by the fact that so many people are working remotely,” said Flood. “That need to get together for events and conferences, I think, is quite healthy.”
He believes that the overall demand tapering is “a natural thing.”
“We still see growth [ahead], but it’ll be at a slower pace,” said Flood.
Photo: Germain Hotels
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