Canada hotels post highest rates since September 2019: STR

Canada’s monthly hotel performance improved from the previous month yet again, and room rates reached the highest level since September 2019, according to STR’s May 2022 data.

May 2022 (percentage change from May 2019)

• Occupancy: 63.4 per cent (-6.7 per cent)
• Average daily rate (ADR): CAD171.37 (+2.8 per cent)
• Revenue per available room (RevPAR): CAD108.67 (-4.1 per cent)

In addition to the highest ADR level since September 2019, the May RevPAR level was the country’s highest since October 2019 while occupancy was its highest since August 2021.

“Overall, May was a strong month for Canada hotels, with many of the segments that have lagged in recovery showing real improvement,” said Laura Baxter, CoStar Group’s director of hospitality analytics for Canada. CoStar Group is the parent company of STR.

“The main recovery driver is still strong leisure demand, as a surplus in household savings is being spent on travel and hotels,” Baxter said. “Weekend metrics therefore benefited and continued on an upward trajectory, with room rates reaching double-digit growth and occupancy returning to pre-pandemic levels for the first time. Weekday demand (Monday through Wednesday) continues to lag, while Thursday and Sunday, which are typically check-out days for corporate and leisure guests, respectively, are bouncing back quicker than the other weekdays. This could suggest that travelers are extending their weekend stay on either night, blending working remotely from a hotel with some leisure nights. Group demand once again reached a pandemic-era high in May, and as more large conferences and citywide events are taking place, we expect this number to climb again in June, which should benefit urban locations.

Among the provinces and territories, Manitoba recorded the highest May occupancy level (69.4 per cent), which was 2.0 per cent above the pre-pandemic comparable.

Among the major markets, Vancouver saw the highest occupancy (76.0 per cent), which was an 8.5 per cent decline from 2019.

The lowest occupancy among provinces was reported in Prince Edward Island (51.9 per cent), down 11.8 per cent against 2019. At the market level, the lowest occupancy was reported in Edmonton (-2.4 per cent to 55.3 per cent).

“Now that there are no longer government subsidies propping up the sector, hotels are fully reliant on stronger operating performance to service debt, and many are in a compromised state from the pandemic,” Baxter said. “However, Canada’s hotel performance outlook for the summer is tremendously strong. The most recent forecast for 2022 has been revised upward based on ADR rising quicker than expected. Rates are now expected to be at $167 this year, exceeding pre-pandemic levels in nominal terms next year. Occupancy is forecasted at 58 per cent and will come close to 2019 levels next year.

There are some macroeconomic headwinds and a possibility of a recession. If discretionary spending is heavily impacted, and there is a downturn in performance, more distressed transaction activity is a possibility. Currently, this is only a downside risk to the outlook. Uncertainty surrounding how quickly and how high interest rates will rise, in addition to the increasing cost of capital, may keep transaction volumes low in the second half of 2022.”