More winners than losers in CBRE 2019 Outlook

TORONTO — CBRE's National Hotel Market Outlook showed that there are more winners than losers, said Brian Stanford — with more markets looking at positive RevPAR growth and Vancouver and Toronto reporting phenomenal numbers. Not long ago, Calgary and St. John's were on the negative side among cities looking at RevPAR growth. Their RevPAR is basically stable — and supply is a major reason for Edmonton, Saskatoon and Ottawa looking at the negative side.

All these numbers can be compared to the national averages, which show that while growth is softening, we are still sitting in 2019 with strong numbers.  These include:

— Overnight travel growth of 2.2 per cent in 2019, coming off tremendous national accommodation demand growth in 2017 of 3.9 per cent, and 2.6 per cent forecast for 2018.

— The supply curve is starting to creep up, but this is after 10 years when supply was well below the average of not more than 1.5 per cent. This will continue to be the case until 2020-21, as there is a lot of interest an pent up demand for new product.

Canada is still experiencing strong ADR growth of 4.5 per cent this year and 3.9 per cent projected for 2019. In 2016, we achieved what was then record high occupancy of 64 per cent; and since then it has risen to 67 per cent — largely driven by major markets such as Vancouver, Toronto and Montreal and then passed down to secondary and tertiary markets.  RevPAR has steadily risen from $94 in 2016, to $112 projected for 2019.

The bottom line is that the country is experiencing slowing but continued growth in ANOI or bottom-line profits — growing by 15.8 per cent in 2017, 10.6 per cent this year and projected to grow 6.8 per cent in 2019.  That translates into expected adjusted net operating income of $16,800 per available room by 2019.

Of course, the picture varies throughout the country.

Vancouver leads the way
“When we talk about B.C., we're really talking about Vancouver, as it accounts for 35 to 40 per cent of the room base,” said Stanford. That being said, “the numbers are staggering.”

RevPAR in BC has grown by 16 per cent in 2017, 20 per cent in 2018 and is projected to increase by 12 per cent in 2019. “That's not translating into Northern B.C. or the interior — they have had growth, but not quite at this level.”

Records and recovery in the West

Not long ago, Alberta excluding resorts had occupancy of 60 per cent across the province, with the resource sector affecting secondary and tertiary markets. There has been some improvement in Calgary and Edmonton, but it's tough now because of new supply.  

“We're at the beginning of a recovery — we've bottomed out — but it's a long way back to where we were in 2012/13,” said Stanford. “At $10,000 per room  [ANOI] — the bottom line is literally cut in half.”

The Alberta resorts and Whistler, on the other hand, are two sub-pieces that are exceptional. “Leisure travel is high in Whistler, Banff and the Rockies, and they continue to perform at record levels.”

Toronto supply and demand

“In the downtown core of Toronto, the list of projects is longer than I've seen since we started PKF [35 years ago],” said Stanford. “We've got One Bloor West, the Hotel X opening [404 rooms], and Steve Gupta's Canopy under construction. There are a number of other groups — small and mid-size boutique companies. Manga Hotels has three projects in the pipeline in downtown Toronto alone.”

Shovels are in the ground for a total of about 600 rooms, including projects such as King Blue (120 units), AC (130 rooms) and Rosedale on Bloor/Canopy. Another dozen projects are in various stages of planning — adding up to about 2,000 rooms all in the downtown core.

At the same time, the market will see the exodus of about 2,000 rooms, with the redevelopment of the Chelsea Hotel and the Courtyard by Marriott — replaced by 500 rooms. 

“With all the projects in the planning stages, we will probably end up with a net gain,” Stanford said.

Montreal: All rooms back in the market

Montreal saw the biggest re-opening in a long time as The Fairmont Queen Elizabeth came back into the market. “2017 was a strong year with the 150th, and Montreal's 375th, and the Queen Elizabeth was not in the market. Now all rooms are back in the market and demand was up in 2018. In 2019, Montreal still expects to have 73 per cent occupancy and rate growth of 4 per cent,” Stanford said.

St. John's faces challenges

St. John's, N.L., faces big challenges, said Stanford. As recently as 2013/14, the market had 75 per cent occupancy, but it will be lucky to finish 2018 at 50 per cent, and new supply in 2019 won't alter that. This is an 1,800 to 1,900-room market that has seen close to 50 per cent increase in supply over a four-year period — as well as an erosion in demand due to challenges in the resource sector. 

“In 2018, the city got a new Sandman, Best Western and Alt hotel, and a Hilton Garden Inn will be coming in 2019 mid-year,” said Stanford. “It will be awhile before we see a true recovery.”

Three negative markets

Edmonton, Saskatoon and Ottawa, the three markets showing negative RevPAR growth, have three things in common, said Stanford. They continue to see supply growth. 

The Ottawa market is extremely strong, but it showed a blip due to supply growth, including Le Germain downtown, and huge supply in West Ottawa including a Sandman, a Homewood and a Fairfield by Marriott.