There is more room at the hostel as the hotel industry bounces back
As the travel and hospitality industry slowly shakes the COVID-19 pandemic, investors and developers are keeping a close watch on hotel properties across North America, and many love what they see on the horizon.
“We are in the middle of a good rebound. The United States is a little ahead of us, but we certainly see it in Canada too, ”said Brian Leon, president of Choice Hotels Canada, which operates more than 330 hotels under brands such as Comfort Inn and Quality Inn.
Speaking at a hotel investment conference held in Western Canada in mid-November, Leon said there are several reasons why it seems like a good time for hotel investors. ‘consider hotel properties of all kinds.
“The industry has shown itself to be resilient during the pandemic. No one knew what was going to happen when it started, but hotels have learned to operate efficiently with lower revenues, ”he says.
The large real estate markets of downtown Toronto, Montreal and Vancouver have tended to lag behind in the recovery, growing slower than some of the secondary and tertiary markets
– Fraser Macdonald, Colliers Canada Hotel Manager
Another factor is that there are interested buyers, he adds. “Potential investors and lenders have noticed that the industry has been going through terrible times in a much better shape than they anticipated and they look to the future with a good eye,” said Leon.
The latest research on the sector tends to support his optimism. “Investor sentiment towards the accommodation category continues to improve,” according to INNvestment Canada, Colliers Canada’s industry review for the third quarter of 2021.
After a 20-month pandemic, “the Canadian tourism industry is on the road to normalcy,” Colliers said.
The new normal
Transactions in the first nine months of this year reached $ 1.1 billion, with 106 transactions. That topped the $ 862 million in deals that took place throughout 2020, when the pandemic first took hold.
This year’s transactions for the first three quarters were near the level of pre-COVID-19 hotel investments in Canada during the comparable period in 2019, when they reached $ 1.25 billion.
There were approximately 25 hotel transactions in Canada in the first three quarters, totaling $ 290 million. Two major sales, the King Blue Hotel in downtown Toronto for $ 74 million and the Best Western Plus in Victoria for $ 36.1 million, were the first sales without conversion since the start of the pandemic.
“Much of the transactions that took place in 2020 and early this year were in ‘alternative use’ trades – hotels bought by cities and turned into lodgings, or hotels becoming student residences. We are now seeing more “traditional” hotels – hotels that are still hotels, ”said Robin McLuskie, Managing Director, Hotels at Colliers Canada.
This year so far, 62 percent of transactions in Canada have been in hotels intended to remain hotels, while 29 percent are intended for conversion and 9 percent are distressed properties where the company has gone bankrupt.
Even with that percentage of struggling sales, investors now trust the Canadian hotel industry as a business, adds McLuskie.
“There was a lot of talk earlier about whether more hotels would go bankrupt, with declining occupancy rates, but they stuck it out. Government support programs have helped, ”she says. Canada’s emergency wage subsidy paid up to 75 percent of workers’ wages up to $ 847 per week, allowing many hoteliers to retain their staff.
“There is a lot of confidence in the long-term projections for hotels. Investors believe the situation caused by the pandemic will reverse over time, ”said Tom Rothfischer, National Real Estate Leader, KPMG Canada.
The hospitality industry has been altered by the pandemic in many ways. Properties are being modernized and redesigned to meet changing consumer expectations for COVID-19 amenities and security, and hotels and sites in some areas are attracting more interest among potential buyers than others.
“The large real estate markets in downtown Toronto, Montreal and Vancouver have tended to lag behind in the recovery, growing slower than some of the secondary and tertiary markets,” said Fraser Macdonald, hotel manager at Colliers Canada.
Part of the reason is a sharp drop in business travel, conventions and international visitors during the pandemic, Macdonald said. Secondary and tertiary markets in Canada, like northern Ontario, haven’t declined as much and there is strong interest in properties in those locations, he says.
Investor interest in large city properties may increase as international travel resumes, Macdonald adds.
“In 2019, the occupancy rate in Canada was 65% and by the end of last year it had fallen to 30%. So far this year it’s up to 40 – it’s going in the right direction, but there’s still a way to go, ”he says.
Mr. Leon says interest in new projects is also increasing now. “At the start of the pandemic, many projects were put on hold or canceled, and now, as business picks up, there will be fewer hotels online. This means reduced supply and increased demand, which makes it the perfect time to invest in new hotels, ”he says.
The most recent investments in new projects so far have been in limited-service hotels such as those at highway intersections, rather than large city hotels, Leon adds. “Real estate in large urban centers is expensive and large projects are complex and more difficult to build,” he says.
The design of hotels is also changing due to the pandemic, adds Leon.
“There is a big emphasis on efficiency in the use of space, and a push for better technology,” he explains. Some of the technology is focused on hygiene – contactless elevators and keyless entry to rooms, for example. And many chains and operators are rethinking the breakfast buffet, which was cut back during COVID-19.
“Hotels are also considering more rooms with exterior doors, so people can enter their rooms directly from the outside,” Leon said.
“It’s something we didn’t see before the pandemic, but it’s a trend that could continue.”