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Western Canada hotels a smart bet for investors

B.C. leads the entire nation in revenue growth and per-door prices, but opportunities seen in the Prairies where valuations may be near the bottom
parq hotel
Two new luxury Marriott hotels anchor the Parq complex in downtown Vancouver; the city leads Canada hotel markets in revenue per room, annual income per room and business conferences and meetings. | Chung Chow

 

Canada’s hotel property transactions are expected to come close to the near-record $3.4 billion tallied in 2017, according to a report from CBRE, led by British Columbia, which is outpacing the nation in hotel revenues this year.

“Last year was another year of landmark hotel transactions. We saw the sale of the Sheraton Centre Hotel in Toronto for $335 million, the largest-ever single hotel transaction in Canada, and Hong Kong’s Leadon Investment Inc.’s acquisition of [British Columbia Investment Management Corp.] BCIMC’s SilverBirch Hotels & Resorts portfolio for $1.1 billion, to name just two. A new pricing threshold was also set with the sale of [Vancouver’s] Rosewood Hotel Georgia at $930,000 per room. The major components of the Canadian hotel market are synchronized and this positive momentum is carrying through to 2018,” said  Bill Stone, executive vice-president of CBRE Hotels in Canada.

The startling sale price of the 156-room Rosewood is not the only measure of how Vancouver is outperforming the rest of the country. The city has also become Canada’s No. 1 destination for business meetings, with 33 conventions and events booked so far in 2018, the highest number in the city’s history. 

B.C.’s adjusted net operating income per available room in 2017 was $23,600. Take the West Coast province out of the equation and the national comparison was around $10,000 in income per hotel room said David Larone, senior managing director of CBRE Hotels valuations and advisory group.

“For 2018, we are expecting to see an increase in conference and convention activity and these solid fundamentals will continue to support demand for hotels,” Larone added.

Central Canada will lead the country in revenue per available room (RevPAR) growth, which is forecast to increase 4.6 per cent to $115 in 2018, followed by Western Canada increasing 4.2 per cent to $100, according to CBRE’s 2018 Hotels Outlook Report

Atlantic Canada will see a modest uptick in RevPAR as well, rising 2.3 per cent to $88. 

Vancouver’s RevPAR is forecast to reach $161 this year, the highest of all major Canadian markets in terms of both dollar value and growth, with a 7.5 per cent surge from 2017. 

In terms of annual profits, Western Canada will lead the pack with an increase of 7.3 per cent to $16,100 per room, followed by Central Canada with an increase of 9 per cent to $15,700 and Atlantic Canada with an increase of 4.9 per cent to $10,800, CBRE forecasts. 

“It is a good time to be a hotel owner,” Larone quipped. 

While the  overall Western Canada hotel market is performing well there are exceptions, said analyst Carrie Russell, managing director of HVS Canada. 

“The performance of individual markets within Western Canada varied wildly,” Russell noted in a report to Western Investor. “At one end, the Vancouver airport market sustained a remarkable 14 per cent increase in RevPAR, while the Regina market suffered a severe 10.5 per cent decline. Between these two bookends strong performances outweighed the weak ones by a considerable amount.”

Russell said that the hotel markets in both Saskatchewan and Alberta may offer buy opportunities for hotel investors this year. But, she said, investors must look closely at potential hotel properties in any market. 

“Finding a site is easy, but finding a site that is actually conducive to a successful hotel development is much more difficult. If you can easily find a site for a hotel development, then so can competitors.”  The Calgary airport market is an example, currently experiencing a glut of new hotel supply that is not easily being absorbed, she explained. 

Western Canada is a “tale of two markets,” according to CBRE, with flat performance in Alberta and Saskatchewan and stellar growth in B.C. and Manitoba. 

“While Alberta profits have finally bottomed out, a 1 per cent increase is projected for 2018. However, this is a significant improvement from aggregate declines of almost 50 per cent over the last three years,” the CBRE outlook report noted. 

Calgary and Edmonton’s economic growth forecasts for 2018-21 put them in second and third place, respectively, of all major metropolitan hotel markets in Canada, according to CBRE.