Large increases in hotelier revenues this year will not spark a flurry of Canadian hotel development, says the author of a new Cushman & Wakefield report.

“We are seeing more activity on the development side,” said Brian Flood, C&W’s hospitality and gaming valuation and advisory practice leader, in an interview. “Obviously, with the stronger revenue numbers that makes development more attractive. However, we are still seeing high construction costs, and that is still an issue going forward.”

According to the report, Canadian hotel sector continues to outperform most other major real estate asset classes in the post-pandemic era. The hotel market is poised for a record year in 2023 after revenue per available room (RevPar) jumped 21% in the third quarter from pre-COVID levels. Revenues rose although occupancy remains below the third-quarter 2019 mark.

Flood said the increased revenue has resulted from pent-up demand and changes in traveller attitudes whereby people are willing to pay for better experiences following lockdowns. Inflation has also been a factor.

“The cost of everything has gone up significantly,” he said. “And, accommodation is certainly, another sector that has seen those increases as well.”

Since most hotels are franchises, most developers only complete one or two projects at a time.

“Most of the activity is in suburban markets and in secondary and tertiary markets where land costs are a little bit lower; and in some respects, the cost to build could be a little less,” said Flood. “We’re not seeing a lot of development activity in city centres, because of the cost of land and the cost of high-rise construction. So while we are seeing some improved development activity, it’s really a fairly modest pace. So we’re not expecting a surge in development or anything like that.”

Based on hoteliers’ projections, Flood expects Canadian hotel revenue growth to moderate in 2024 and remain in the 5% range.

Photo: Germain Hotels