Strong Pace of Hotel Activity in Second Quarter Catapults First Half Volume: Report

A recent INNvestment Canada Hotel Report by Colliers International Hotels has revealed that a brisk pace of transactions during the second quarter propelled the total volume for the first half of the year to exceed $1 billion, marked by noteworthy sales in urban and resort markets.

Throughout the second quarter, there was a noticeable resurgence in travel demand, building upon the already impressive growth seen in the first three months of the year, according to the report.

This upturn is clearly reflected in the strong performance of Canadian lodging operations, as indicated in the accompanying graphic. Anticipated activity remains robust throughout the peak summer season, with operational performance in most markets consistently surpassing management budgets. The outlook for full-year 2023 is optimistic.

This strong rebound is serving as a catalyst for investment sales, both those already closed and those in the pipeline. Hotel investment volume in the first half of 2023 has exceeded $1 billion, a significant increase from the $550 million traded in the first half of 2022 and surpassing the $830 million recorded in the first half of 2019.

Despite the new interest rate landscape, upward pressure on cap rates has been mitigated by substantially improved in-place cash flows and greater visibility into future operating performance.

A robust level of activity during the second quarter propelled the total volume for the first half of the year to over $1 billion, featuring significant sales in urban and resort markets. Approximately $1.05 billion worth of hotels changed hands in the first half of the year, nearly doubling the comparable investment levels observed in 2022, with 90 per cent of the volume associated with acquisitions for continued hotel operations.

Fueled by nine transactions exceeding the $25 million threshold, Colliers Hotels reported approximately $740 million in second-quarter sales, accounting for 70 per cent of the year-to-date volume.

These transactions occurred in key locations such as Toronto, Banff, Kelowna, and the Atlantic coast, among others. Reflecting the surge in high-value transactions, the normalized average price per key metrics* reached $192,100, marking a year-over-year increase of over 30 per cent.

Private domestic capital sources remain the primary drivers of activity on both the buying and selling sides of the market, with limited participation from institutional capital and public companies.

Given the substantial pipeline of hotel offerings recently closed and currently on the market, our forecast indicates year-end volume will fall within the range of $1.75 billion to $2 billion.