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B.C. hotel industry sideswiped by virus outbreak

Hotel sector was posting highest revenue growth and had 1,000 new rooms underway when the new coronavirus hit
Nanaimo marriott
Already under construction in B.C. is the nine-storey 172-room Marriott Hotel that broke ground in January next to Nanaimo’s Vancouver Island Convention Centre. | Image supplied

B.C.’s high-flying hotel industry has been grounded by the COVID-19 crisis, dropping what were the highest occupancy rates in the country to single-digit levels for the first time in history.

Major hotels, including the iconic Fairmont Vancouver Hotel, have closed but at least a dozen new hotels are under construction across the province, totalling more than 1,000 rooms.

“I think it is very unlikely that projects that are under construction will be stopped unless that is required by health authorities. I’m sure the current situation will result in [some] projects being delayed,” said Carrie Russell, senior managing partnerat HVS, a hotel consultancy.   

The Conference Board of Canada, in a March 23 real estate update on the COVID-19 crisis, suggested hotel assets will take a blow right across the country. “Many of them will suffer double-digit [revenue] declines in the second and third quarters,” the report forecast.

In 2019, B.C. registered the strongest revenue-per-available room growth in Canada with an increase of 2.6 per cent in the key industry metric. At 71 per cent, B.C. also had the highest occupancy levels in Canada.

Russell expects to see more B.C. hotels closing because occupancy levels are expected to dip to 10 per cent or even lower, but she said it can be a tough call for owners.

“Because there are a lot of fixed costs in a hotel sometimes it just makes more sense to stay open at really low occupancy levels with a skeleton staff,” she said. 

The hotels under construction are primarily outside of the Lower Mainland, including five in the Okanagan Valley and two on Vancouver Island. The latter includes a nine-storey, 172-room Marriott that broke ground in January next to Nanaimo’s Vancouver Island Convention Centre.

With all major conventions cancelled and foreign visitors banned, Marcus and Millichap singled out the hotel sector as the hardest-hit in a March 23 report on the effect of COVID-19 on commercial real estate.

“Hotels will likely face the most direct impact as businesses and tourists reconsider travel plans and restrictions are placed on mobility. Properties with a significant Asian customer base will face softening demand,” the report stated.