Canada’s hotels see mixed fortunes in major cities and provinces in Q3 2024

National performance: Stability with moderate gains

The year-to-date (YTD) analysis through September 2024 reveals moderate but encouraging growth for Canada’s hotel industry. RevPAR (revenue per available room) increased by 3.5 per cent compared to the same period in 2023, reaching $142.39. This growth was driven by a 3.7 per cent increase in ADR (average daily rate) to $211.54, counteracting a minor 0.2 per cent decline in occupancy, which averaged 67.3 per cent.

The stabilization of supply and demand patterns signals a return to normalcy after years of pandemic-induced disruptions, though economic pressures continue to influence market behaviour.

Regional variations: A mixed bag of results

Provincial performance highlighted significant disparities, with some regions experiencing notable gains while others faced declines:

• Alberta led the country with an 8 per cent rise in RevPAR, buoyed by strong demand and ADR growth.
• British Columbia, Saskatchewan, and Quebec each posted a 4 per cent increase in RevPAR, reflecting steady performance and strong summer tourism.
• New Brunswick (3 per cent) and Ontario (2 per cent) saw modest gains, demonstrating stable market conditions.

Conversely:

• Prince Edward Island recorded a 4 per cent decline in RevPAR, attributed to a strong base year in 2023.
• Newfoundland and Labrador experienced a 2 per cent drop in RevPAR, despite strong ADR gains.
• Manitoba and Nova Scotia also faced challenges, with reduced demand driving moderate declines in performance metrics.

Urban centres: Victoria shines, Winnipeg and Halifax struggle

Canada’s major markets showed generally positive results, with 8 of 10 key cities reporting RevPAR growth:

• Victoria emerged as the top performer with a 13.7 per cent increase in RevPAR, driven by strong summer tourism.
• Edmonton (10.9 per cent), Calgary (6.8 per cent), and Montreal (4.7 per cent) also delivered strong results, reflecting a rebound in both leisure and business travel.
• Vancouver (2.9 per cent), Ottawa (1.7 per cent), and Toronto (1.2 per cent) showed slower but steady growth.

Challenges persisted in Halifax (-2.4 per cent) and Winnipeg (-4.1 per cent), with Winnipeg particularly affected by reduced government and contract-related demand.

Key challenges for the industry

Short-term rental impacts:
A McGill University study highlighted the significant impact of municipal short-term rental regulations, which saved British Columbia renters over $600 million in 2023. These measures continue to shape the competitive landscape for hotels.

Labour costs:
The British Columbia Hotel Association reported that rising labour costs are eroding profitability, particularly in resort areas. Addressing these pressures remains critical for sustaining financial performance.

Economic uncertainty:
The potential for lower interest rates in late 2024 or early 2025 is creating optimism among investors. However, lending metrics, such as loan-to-value ratios (60-65 per cent) and debt coverage ratios (1.3x-1.5x), remain tight, limiting access to capital for some operators.

Innovations and opportunities

Office-to-hotel conversions:
The City of Calgary’s initiative to subsidize office conversions ($50-$75 per square foot) has created new opportunities for developers. PBA Development’s transformation of an office building into an extended-stay Element by Westin highlights the potential of such projects, despite operational challenges like limited parking infrastructure.

Enhanced investor interest:
According to Deloitte’s 2025 Commercial Real Estate Outlook, hotels are increasingly attractive to investors. The luxury segment is driving strong RevPAR growth, supported by consumer preference for high-end experiences.

International insights from the ISHC Conference

The Hospitality Innsights Q3 2024 report also touched on global trends discussed at the International Society of Hospitality Consultants’ conference, including:

• Global travel slowdown: Travel growth is decelerating after the post-pandemic rebound, though improving economic conditions, such as lower inflation, could support recovery into 2025.
• Emerging destinations: There is a growing demand for new travel experiences, with regions like Saudi Arabia and the UAE poised to capture significant market share. Saudi Arabia’s leisure travel is expected to expand from 1 million to 19 million visitors by 2030.
• India’s domestic tourism boom: Infrastructure improvements are driving increased domestic travel, with younger travellers seeking religious and cultural experiences. Hotels are responding with tailored offerings and smaller development sizes to accommodate land cost constraints.

Looking ahead

The Canadian hotel industry’s performance in 2024 reflects its adaptability to evolving economic and market dynamics. By leveraging data-driven insights, addressing labour challenges, and capitalizing on innovative development opportunities, the sector is well-positioned to navigate the remainder of the year and beyond.

For hoteliers, the focus should remain on enhancing operational efficiency, optimizing ADR strategies, and staying attuned to shifting consumer preferences and regulatory changes.

Read the full report HERE.