The outlook for the Canadian Hotel segment is looking ripe for investment according to a recently released report from the CBRE. The CBRE Canada’s 2018 Hotels Outlook Report showed that there was strong operational performance which is expected to continue in this year.
The report indicated that hotel-investment volume reached $3.4 billion in 2017 and $4.1 billion in 2016. These years were marked by a higher volume of merger and acquisition deals which had not been a trend in this industry for quite some time. The healthy state of Canada’s hospitality segment is positively influenced by low-interest rates, lower Canadian dollar valuations, continued economic growth, increased business travel and a budding tourism industry. In 2018, it is also expected that there will be an influx of conference and convention activity in major metropolitan cities in Canada. As such, these factors indicate that the demand in the Canadian hospitality space is trending.
There are three main indicators of favourable investment conditions in the hospitality industry in Canada:
- It is predicted that there will be positive operating fundamentals in each Canadian region with Central Canada forecasting to increase by 4.6% to $115, Western Canada forecasting to increase by 4.2% to $100, and Atlantic Canada forecasting to increase by 2.3% to $88.
- There is a positive upward trend in profits. Overall, there is a 16% increase in profits across the Canadian market in 2017 which represents $14,300 in profits per room. Western Canada increased in profits by 7.3% to $16,100 per room. Central Canada increased by 9% to $15,700 per room, and Atlantic Canada increased by 4.9% to $10,800 per room. It is predicted that there will be continued growth in profits in 2018.
- Hotel room demand is outpacing supply. There is a limited supply of hotel rooms in Canada’s major cities. For instance, Metro Vancouver was at 79% occupancy in 2017, and it is forecasted to reach around 80% in 2018. It is clear that more supply may be needed to satisfy a growing demand.
With these favourable indicators, it will not be a surprise if there will be more merger and acquisition activities in this upcoming year.
The author would like to thank Shirley Wong, Articling Student, for her assistance in preparing this legal update.
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