Canadian Lodging News' Economic Outlook Report

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By Marni Andrews

According to The Conference Board of Canada’s Provincial Outlook Summary, Summer 2013, Canada’s humdrum economic performance is about to get a jolt. Through much of the first half of this year, there were few encouraging signs from economic indicators but prospects seem to be getting better. Housing markets have strengthened, consumer and business confidence has picked up, and the U.S. economy is gaining speed despite the heavy drag caused by higher taxes and fiscal restraint.
Following two years of subpar growth (just 1.8 per cent in 2012 and 1.7 per cent in 2013), real GDP in Canada is forecast to advance by 2.4 per cent in 2014.
On the surface, the Canadian tourism sector looks healthy, but that’s mainly because spending by Canadian travellers is up seven per cent year over year.
“Canadian consumers are contributing 80.8 per cent of tourism receipts, up from 66.9 per cent a decade ago. We are effectively moving market share around rather than growing it,” said Tony Pollard, president, Hotel Association of Canada.
“At the same time, Canadian appetite for international travel has not gone unnoticed. We are competing internationally, but Canadian travellers are being targeted by better resourced international competitors,” explains Pollard.
Canada is one of only five countries to experience a drop in international in-bound visitors with arrivals growing by 1.8 per cent versus four per cent globally, says Pollard. If Canada had four per cent growth in this area, the impact on hotels would be:
o   522,000 more room nights
o   $689 million
o   $151 million in tax revenue
“We need a competitively funded National Marketing Program to put Canada up there with Australia, New Zealand and United States,” says Pollard.

British Columbia sees double digit RevPAR

Economic indicators for the hotel business are positive, particularly in Northern BC, according to James Chase, CEO, British Columbia Hotel Association. Mining, exploration, planning for LNG, pipelines and major infrastructure projects are all contributing to a solid business base with travel and tourism adding to positive growth.
The Lower Mainland is seeing positive organic growth due to population expansion while very good weather and pent-up demand from five years of flat growth contributed to a good summer on Vancouver Island.
BC saw double digit August over August RevPAR growth of 11 per cent, according to HVS’ August 2013 Canadian Hotel Review, with Vancouver (along with Montreal and Toronto) seeing robust growth in occupancy and ADR.
Vancouver added more than six percentage points to its August occupancy, which reached 88.8 per cent. With ADR up 5.8 per cent, they were able to add roughly $17 to RevPAR relative to August 2012. Vancouver led the major metro areas not only in August-over-August growth but also in RevPAR position with a $23 premium over the next strongest market of Montreal.
Markets with no new hotel room supply in 2012 included downtown Vancouver and Richmond, according to Robin McCluskie of Colliers International in the 2013 Canadian Hotel Investment Report. Of the 116 Canadian hotel transactions in 2012, 12 (representing 11 per cent) were in BC with 1,113 rooms total and an average price of $96,800 per room, well above the national price of $83,600.

Alberta economy strong despite floods, labour woes

The Alberta economy is relatively strong with January to May 2013 retail sales up 6.6 per cent, urban housing starts up 8.2 per cent July YTD, and international exports up 2.2 per cent June YTD, according to Dave Kaiser, president and CEO, Alberta Hotel & Lodging Association.
While the June floods negatively impacted properties, infrastructure and highways in areas such as High River, Canmore, Banff and downtown Calgary, other properties saw higher occupancies from displaced residents and recovery personnel.
Labour shortage is the number one challenge for industry with Alberta’s July unemployment rate at 4.5 per cent. Access to foreign worker programs is key, says Kaiser, since 20 per cent of full-time employees are Temporary Foreign Workers.
July YTD 2013 occupancy figures are 67.2 per cent (vs. 65.1 per cent for July 2012); ADR is $137.63 (vs. $132.71); and RevPAR is $92.44 (vs. $86.43).
The funding model for tourism marketing in Alberta is strong, with a four per cent provincial tourism levy and growth of Destination Marketing Funds in many cities and regions. Kaiser feels that access to Canada vis a vis high airport cost structures and an onerous visa process continue to be impediments to tourism growth.
The most recent visitor stats show 86 per cent are from Alberta, 10 per cent are from the rest of Canada, and two per cent each are from the U.S. and overseas. Of overseas markets, the U.K., Germany and Japan are strongest but China is growing.
Microtel Inn & Suites has entered Alberta, and Edmonton’s Mayfield Inn and Suites is being rebranded by SilverBirch Hotels and Resorts into two facilities: the city’s first DoubleTree by Hilton and a Home2 Suites by Hilton to appeal to international visitors.

Saskatchewan saw 40 new build hotels this year

According to Tom Mullin, president and CEO, Saskatchewan Hotels & Hospitality Association, the province is generating a lot of activity that is positively affecting occupancy and rates. From January through May 2013, Regina’s occupancy was 75.9 per cent and Saskatoon’s was 73.4 per cent. Occupancy last year at the same time was 70.2 per cent and 74.5 per cent respectively. This month, Regina is hosting the Canadian Western Agribition followed by the Grey Cup at the end of the month, which should push occupancy up to 80 per cent for November. Saskatoon is very steady, says Mullin.
ADR is creeping up with Regina sitting at $130.27 from January through May and Saskatoon at $148.39. Regina’s RevPAR was $98.88 and Saskatoon’s $108.89 for the same period.
Over the last year, there have been about 40 new builds at various stages throughout the province, says Mullin, especially in small bedroom communities on the periphery of Regina and Saskatoon. Two properties are scheduled to open this fall in White City, ten miles east of Regina, while Regina will see a newly renovated DoubleTree open just before the Grey Cup. A Four Points by Sheraton is being built just outside the Regina downtown core while as many as 10 more hotels could be built in the next few years in and around Saskatoon, according to a recent article in The Star Phoenix.
In August 2013, Saskatchewan saw RevPAR growth of 8.2 per cent compared to August 2012 with the Prairies showing sustained ADR growth of 3.9 per cent compared to the same month in 2012.

Manitoba banking on Winnipeg transformation

Winnipeg is in a state of transformation with more than $2 billion of new investment in attractions and infrastructure, says Marina James, president and CEO, Economic Development Winnipeg. She predicts the 2014 opening of the Canadian Museum of Human Rights will be “a game changer” for visitation to the capital city, which contributes 68 per cent of the province’s GDP.
The city’s room supply has grown by 17 per cent in the last several years and unemployment is at 5.4 per cent.
According to Tourism Winnipeg, 10 new hotels have opened or are slated for construction from 2012 to 2014, which will bring the city’s room total to just over 8,000.
Lois MacDonald, manager of Brandon Tourism, says some of the city’s major events like the biannual Association of Manitoba Municipalities meeting fill almost every one of Brandon’s 1,100 rooms. In July, occupancy was 54.6 per cent (compared to 59.2 per cent for July 2012); ADR was $96.13 and RevPAR was $52.45. A new Holiday Inn opened in the summer of 2012, while a Comfort Inn has just completed a renovation. 2013 will be the first full year of the $3 flat rate accommodation tax per room initiated in July 2012.
In 2012, there were six hotel transactions in the province with 50 per cent of interest in the Holiday Inn Winnipeg-South transferred in December 2012 and the rest in January 2013. This year looks quieter, with only one full transaction over $1 mm reported by the end of June—the sale of Winnipeg’s 100-room St. Regis Hotel to a government development agency for $5 mm.

Ontario’s economic situation deemed ‘precarious’

Tony Elenis, president and CEO, ORHMA, says Ontario has lost close to 20 million international visitors since 2001, most from the U.S. with the necessity for a passport being the principal factor.
The Conference Board of Canada’s latest report calls Ontario’s economic situation “precarious,” with broad-based weakness in demand that will result in real GDP growth of just 1.2 per cent in 2013, the slowest pace since the recession.
However, Ontario saw the most activity in 2012 both in number of hotel trades (50) and total volume ($460.4 mm), outpacing Alberta by 18 per cent in volume, according to Robin McCluskie of Colliers International in the 2013 Canadian Hotel Investment Report.
Toronto North was one of the markets that saw the largest supply of new hotel rooms in 2012 with 2.7 per cent, while Toronto Downtown was one of the most significant markets for hotel value growth at 5.2 per cent, trailing Calgary, Edmonton and Regina/Saskatoon. A 4.5 per cent increase is predicted for the national average in 2013, while Toronto Downtown is expected to see 6.7 per cent growth.
Among the 23 minor metro areas sampled, only two experienced a drop in RevPAR from August 2012 to August 2013: Halifax and Ontario NC/Sudbury, despite both markets having had a very strong August 2012.

Quebec fragile as business investment declines

Quebec’s economic performance remains fragile, according to the Conference Board of Canada’s most recent provincial economic summary.  For the first time in four years, real business investment is expected to decline in 2013. However real GDP is forecast to gain 1.4 per cent this year with economic growth of 2.2 per cent for next year.
In 2012, Quebec recorded 13 hotel trades, worth $135.76 mm, with an average price per room of $71,600, compared to the national average of $83,600.
On the Colliers Hotel Value Index, Montreal Airport had a 3.4 per cent increase last year with 3.7 per cent forecast for 2013. Montreal Downtown posted 3.4 per cent and is forecast to see 3.5 per cent this year.
Danielle Chayer, president & CEO, Association des hôteliers du Québec, says last-minute booking is still very popular with consumers who are “looking for deals, deals, deals” while business travel is quiet with many expense cuts.
This year, six hotels are closing across the province, three of them in Montreal.
With 80 per cent of the province’s hotels and motels independent operations, Chayer is concerned by the high number of independent hotels being listed without their consent by online travel agencies. She is asking the government for copyright law change to help protect these hotels from fraudulent booking practices. 

New Brunswick: weakness offsets consumer demand

Four years of hemorrhaging jobs have left the province’s job market badly bruised and weakness will continue to affect consumer demand though the resource sector is booming, according to the Conference Board of Canada’s most recent provincial economic summary. GDP is forecast to rise from 0.8 per cent this year to 1.9 per cent in 2014.
In August 2013, New Brunswick’s occupancy increased 4.6 per cent and RevPAR 4.3 per cent compared to the same month in 2012.
Occupancy for Moncton is forecast at 55.4 per cent for 2013 vs. 57.7 per cent for 2012 and ADR will be $118.22 vs. $119.20, according to Ray Roberge, GM of the Delta Beausejour and president of the Greater Moncton Hotel Association. He noted that for Greater Moncton and New Brunswick as a whole, visitors from September through June are primarily from NB, NS and PEI while the summer sees a significant increase in visitors from Ontario, Quebec and the U.S.
The occupancy rate, total province, for August 2013 was 75 per cent, according to the Tourism Indicators Report from New Brunswick Tourism, Heritage and Culture. June and July rates were 55 per cent and 68 per cent respectively for an average of 52 per cent for YTD, compared to 51 per cent for 2012. By region there were wide variances, from 39 per cent YTD for the Fundy region to 62 per cent for Moncton/Dieppe.
The former Fairmont Algonquin in St Andrews by-the-Sea is scheduled to reopen this year as Canada’s first Marriott Autograph Collection hotel after a $25 mm renovation.

Newfoundland and Labrador: St. John’s is exciting

The Conference Board of Canada notes that the end of development of the nickel processing facility in Long Harbour will cut economic growth in Newfoundland and Labrador in 2014 to less than 1 per cent.
Nevertheless, the economy in the St. John’s metro area is very strong. St. John’s is the most exciting market in Atlantic Canada with more than 70 per cent occupancy, according to PKF Consulting Inc.’s Brian Stanford. “But keep in mind that it is a 2,000-room market,” adding that new supply coming online could lower that figure.
Average rate for St. John’s 13 major hotels has grown by over 10 per cent since 2009 and RevPAR by over 20 per cent, says Greg Fleming, president, Hotel/Motel Association of Newfoundland & Labrador, who also predicts the Long Harbour plant will have a large spinoff in the next few years.
“The economic situation seems strong for at least the next five years. Factors affecting the hotel market are an influx of new room inventory with the development of at least five new properties within the next three years and potential for a few more in the following two years,” says Fleming.
St. John’s approved a $60 million expansion to the Convention Centre and the International Airport is in the initial stages of a large addition and renovation.

Nova Scotia anticipates limited growth

According to Robin McCluskie from Colliers’ Mid-Year Transaction Report 2013, Eastern Canada accounted for 75 per cent of transaction volume with 35 deals. Nova Scotia earned the second highest share (after Ontario) at 14 per cent of Eastern volume and an average price per room of $153,200.
Phyllis Stephenson, president, Hotel Association of Nova Scotia, still called expectations for 2013 “dismal” with limited growth anticipated over previous years. She says visits to the province have declined by nine per cent in the past ten years.
Tourism Indicators published by the province for January through July 2013 show a provincial occupancy rate of 43 per cent with ranges from 20 per cent for the Eastern Shore to 56 per cent for Metro Halifax. Only the Eastern Shore and Cape Breton were higher than the same period last year. Average Room Rate was $116.79 for this period.
The new Nova Centre for Halifax—a one million square foot mixed development project with convention centre—is still in the works and is expected to open January 2016, says Stephenson. Construction of a two-hotel complex by SilverBirch Hotels and Resorts in downtown Halifax will be complete by April 2014. It will include a 135-room Homewood Suites and a 181-room Hampton Inn that will share a convention centre.
A 169-room ALT Hotel at the Halifax International Airport opened in June.

P.E.I. looks to Convention Centre to boost business

The Conference Board of Canada says economic prospects in Prince Edward Island are dim for next year though agriculture is expected to expand 2.4 per cent this year. Stronger economic growth is not expected until 2015.
PEI is heavily reliant on NB and NS with more than 50 per cent of visitors from those provinces. The May to October period represents 75 per cent of tourism with the shoulder periods well insulated with government, transient and group business, according to Zubair Siddiqi, president, The Hotel Association of Prince Edward Island. With the latter groups highly reliant on economic conditions, the impact can be severe.
January into May 2013 was not very encouraging, says Siddiqi, with numbers down substantially; however June and July changed things. ADR ended up at $117.10 compared to $111.49 year over year for the first seven months. Charlottetown had a very strong July and August with splendid weather helping out.
The new PEI Convention Centre opened in August, which will allow the province to compete for larger groups, says Siddiqi, who is also GM of The Delta Prince Edward and PEI Convention Centre. “Meeting visitors are here for three days plus and they spend more than leisure travellers. I’m very optimistic this will continue to fuel our growth,” he says.