Canada’s hotel markets experienced yet another year of positive growth in 2024, with strong fundamentals and positive lending conditions fueling investment activity.
On a national basis, revenue per available room rose steadily throughout the year, according to CBRE data, and as of October, was on track to reach an average of $134, a 3.3% annual increase.
That growth has been supported by a higher national average daily rate, which is expected to finish 2024 at a historic high of $203, up 3.4% year over year.
Those rates have been bolstered by continued demand for post-pandemic travel. But they have come at the cost of occupancy, which, at a projected 66% for 2024, barely has recovered to 2019 levels. As participants noted during October’s Western Canadian Lodging Conference, rates have begun to “hit a ceiling” and test the demand of domestic leisure travelers.
“The escalation of rates has been so dramatic. Now it’s leveling off, and occupancy can catch up a little bit,” Curtis Gallagher, principal and Canadian hospitality lead at Avison Young, told Green Street News. “I think that that is going to happen in 2025 and 2026.”
At the same time, he does not expect to see double-digit RevPAR or ADR growth next year. “I would argue that 2025 will be the beginning of a more normalized year, and that will be the expectation moving forward, provided there are no other major catastrophic events,” he said.
CBRE projects national ADR will reach $208 in 2025, a 2.4% annual increase, while RevPAR will increase 2.7% to $137.
Deals getting done
Hotels’ strong operating environment and capital availability has led to heightened dealflow – and provoked interest from buyers that normally play in other sectors.
As of Q3, hotel investment volume had reached $1.65bn, up more than 20% year over year, according to Colliers. By yearend, investment volume is expected to approach $2bn.
The average price per room stood at $160,000, down 6% annually but 23% ahead of 2019 levels. The average deal size was $15.1m, a 17% increase year over year.
The largest deal of the year was Morguard’s sale of a 14-hotel portfolio for $410m, the majority of which were acquired by InnVest Hotels.
Other recent key transactions include QuadReal Property’s $112.25m sale of the Residence Inn Calgary Downtown/Beltline to Manga Hotel Group and the $25.2m deal for Hilton Garden Inn Niagara-on-the-Lake between private investors.
Sunray Group has agreed to buy the Bisha Hotel in Toronto for $90.2m from Ink Entertainment. Several big hotels also remain on the block, including the Cambridge Suites Toronto, seeking approximately $150m.
“For the most part, hotel owners were able to push through the Covid period,” Nicole Nguyen, senior vice president of CBRE Hotels, told Green Street News. “As bad as it was, they weren’t forced to sell assets. And you can see how strong of a rebound we’ve had. So even though bottom lines are under a bit of pressure from interest rates and rising labour costs, there’s still cash flowing really well.”
She noted that while hotel owners haven’t felt pressure to sell, there are a lot of buyers interested in making deals. “We’re definitely seeing multiple bids on assets and a lot of interest in pretty much everything that comes to market,” Nguyen said. “The fundamentals are there for a stronger transaction environment, if sellers are willing to sell.”
Developers have been eyeing older, underperforming hotels with the intention of renovating and repositioning them. Foreign investors also have been interested in Canadian hotels, particularly U.S.-based groups who have been drawn in by more favourable financing terms, the strength of their dollar relative to the Loonie and Canada’s conservative nature of development in recent years.
However, private domestic players – a group that has been substantially well capitalized – continue to be king when it comes to actually closing a deal, Avison Young’s Gallagher said.
Their focus is on assets less than 15 years old that are well branded and in major markets. Full-service hotels with significant capital expenditure requirements will present an opportunity for new owners.
But Gallagher also noted that strong demand on the buy-side gives sellers no reason to part with property: “What are they going to roll that into?”
Trending back to normal
Looking ahead, experts expect to see the market enter a period of normalcy.
“I think we’ll see an increase in transactions [in 2025] because the appetite is there, and there’s a robust debt community. You’ll see some of those trades happen, but not in a dramatic fashion,” Avison Young’s Gallagher said. “I think there will be a more normalized level of activity across all of the styles of hotels that are available.”
Mundanity, both in terms of hotels’ performance and transaction activity, is proving to be a welcome reprieve for a sector that has experienced a relative roller-coaster ride for several years, with the low lows of the pandemic – ADR dropped 21% in 2020, while RevPAR sunk 64% – giving way to the high highs of recovery: The figures jumped 33% and 95%, respectively, in 2022.
“Nothing is on fire. Nothing is lurking around the corner, at least that we can see. There’s nothing we’re super concerned about. 2025 is just going to be sort of more normal, more moderate growth. Overall, we’re optimistic about the market. I think the industry is in a good position,” Nguyen said.
“[The data] is real boring. But I think everybody is ready for some real boring right now. It’s not exciting. But I think everybody’s had plenty of excitement in the last several years.”
