Hotel Investment Activity Remains Resilient: Report

A report by Colliers International Hotels has revealed that hotel investment activity remained strong in the fourth quarter of 2023.

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A recent INNvestment Canada Hotel Report by Colliers International Hotels has revealed that Canadian hotel investment activity totalled approximately $320 million in the fourth quarter, pushing the year-end total to over $1.65 billion.

According to the report, investment activity remained resilient year-over-year with established and new entrants to the sector keeping an eye on hotels as investment vehicles in a quest for cash flow.

The report noted that 2023 marked a new record for national average price per key metrics which approached $180,000 with almost 90 per cent of volume attributed to acquisitions for ongoing hotel use.

Source: CoStar

According to the report, despite a likely contraction in the broader economy, RevPAR continued its recordbreaking streak in Q4 2023, and achieved the highest level ever achieved in any Q4 on record.

The report also noted that hotels in Canada solidified their reputation as an inflation hedge with ADR growth well in advance of inflation in Q4. Rate growth across all segments continued. In terms of group rates, they showed robust growth in the year’s final quarter, and according to the report, group demand is one of the last indicators to return to pre-pandemic levels but has also improved in Q4.

Transient occupancy remained elevated against the benchmark year, the report noted, which is driven by those who prioritize attending events and combining leisure with business travel more often. The report noted however, that the metric posted a year-over-year decline in November and December, the first contraction since the segment started to drive the recovery in the beginning of 2021.

Across Canada, weekday occupancy exceeded levels achieved prior to the pandemic due to solid business travel demand.

Urban weekday occupancy remained below pre-pandemic levels, with the most prominent shortfall in Downtown Toronto, according to the report.

The report noted that this year, topline growth will be “more muted.”

“Overall, the negative impact on hotel performance caused by the economic downturn is expected to be short-lived and less severe than previous recessions due to limited supply-side pressure,” reads the report.

The number of new rooms delivered is expected to be 16 per cent ahead of 2023 but roughly 45 per cent below the previous peak in 2018, keeping supply-side pressure to a minimum.

The report noted that this is being amplified by hotels coming out of inventory to be converted to various types of residential to help remedy the ongoing housing shortage.

“Although the full impact of new regulations on the short-term rental sector remains to be seen, the likely impact will provide an upside to the demand forecast, facilitating occupancy and rate growth,” reads the report. “International inbound overnights to Canada are expected to continue recovering in 2024 and may partly compensate for any potential softness in domestic hotel demand caused by the economic slowdown. This is particularly true from the U.S. outbound market, which tends to travel closer to home during election years.”

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