Hotel investors bullish on Canada, Colliers/Ryerson Study

TORONTO — Reflecting the record-high levels of transaction volume and strong momentum moving into 2016, investors continue to show eagerness to invest in hotel real estate.

Fairmont Whistler.

Fairmont Whistler.

TORONTO — Reflecting the record-high levels of transaction volume and strong momentum moving into 2016, investors continue to show eagerness to invest in hotel real estate, with a cautious yet optimistic frame of mind of the Canadian economy in the coming years.

This, according to the results of the sixth annual Canadian Hotel Investment Sentiment Survey that provides insight into the direction of the Canadian hotel real-estate market for the next 12 months. Presented by Colliers International Hotels, the survey was conducted in late 2015 in conjunction with the Ted Rogers School of Hospitality and Tourism Management at Toronto’s Ryerson University with the purpose of capturing the thoughts and investment intentions of active hotel investors in the Canadian marketplace, to benchmark results and identify trends.

SURVEY HIGHLIGHTS

Investors continue to report a strong appetite to invest: 44 per cent indicated buying as the primary investment strategy for 2016, the second-highest ‘buy’ signal since the survey’s inception in 2010.

Almost one-quarter of respondents indicated plans to sell assets in 2016, with multi-unit owners (7-plus hotels) being the most likely to have plans to sell.

The majority of investors are forecasting cap-rate stability throughout 2016.

Investor preference is increasingly weighted to the full-service and limited-service asset classes.

Nearly 40 per cent of investors expect fixed interest rates below 4 per cent in 2016, compared with 24 per cent in 2015.

More than one-quarter of investors expect to secure financing from credit unions, the highest indication since 2010.

Central Canada (Ontario and Quebec) is the preferred region for investment in 2016.

INVESTMENT INTENTIONS

Investors reported an eagerness to continue acquisitions in Canada, with 44 per cent of respondents specifying buying hotel assets as their primary investment strategy for 2016. This was the second highest ‘buy’ signal over the past six years and a good indication of investor confidence in the lodging market. 

Diverging from 2014 results, 35 per cent of investors reported their primary strategy will be to hold, renovate or expand their properties, a 10 per cent increase year-over-year. Those reporting to build hotels (15 per cent) or sell hotels (6 per cent) as their primary investment strategy were similar to historical trends.

An increasing percentage of investors are planning to build/buy hotel properties in primary urban markets, growing from 40 per cent in 2013 to 54 per cent in 2015. During the same period, preference of primary suburban markets has declined 9 per cent, reaching 23 per cent in 2015. Preference for assets in secondary/tertiary/other markets has generally been increasing in recent years, however, was only indicated by 23 per cent of respondents in the 2015 survey.

The majority (53 per cent) of investors indicated they plan to pursue hotel investments in Central Canada (Ontario and Quebec) in 2016, followed by Western Canada (35 per cent), which together have historically been favored by approximately 90 per cent of those surveyed. Plans to pursue investments in Western Canada in the next 12 months declined 10 per cent year-over-year, which may be a result of economic pressures related to the energy sector. In-line with previous years, 12 per cent reported plans to pursue investments in Eastern Canada, which is measured east of Quebec. The top five most sought-after investment markets for 2016 include downtown Toronto, Ottawa, Toronto Airport/West, Calgary and Edmonton.