Toronto - With hotel supply growth at a near standstill, several Canadian markets will be especially challenging for corporate travel buyers this year as they negotiate their hotel programs for 2015.
Hotel supply in Canada is forecast to increase 0.8 percent this year, following two years at a 0.5 percent growth rate, HVS Toronto managing director Monique Rosszell said during an event held by The BTN Group here in September. That's well below Canada's average growth level of 1.3 percent, which is a percentage point below the average U.S. hotel growth rate, she said.
"The biggest hurdles developers have are the financing, and our banks are much more conservative," Rosszell said. "This causes barriers to entry."
Hotel occupancy in downtown Vancouver, for example, is projected to hit an average of 74 percent this year, up three percentage points compared with 2013. With a meager 0.2 percent supply growth rate projected for 2015, the international hospitality consultant projects occupancy will hit 76 percent in 2015, which essentially means Monday nights through Thursday nights are sold out, Rosszell said.
"In Vancouver, there's no land available to build hotels," she said. "The cost is so exorbitant, you can't make a financial case for building a hotel."
Downtown Toronto faces a similar situation, with average occupancy for 2014 forecast at 75 percent and supply growth at 0.3 percent. While supply is projected to grow 3.8 percent next year, demand growth will be even higher, leading to an occupancy level of 77 percent, according to HVS.
In fact, a 567-room Delta Hotel slated to open in November will be the first full-service, standalone hotel to open in downtown Toronto in 25 years, Rosszell said. While a few other hotels are under construction, including a 400-room independent hotel on the Canadian National Exhibition grounds, the city, as with Vancouver, has very little land to accommodate new hotels besides small boutique properties and mixed-use development, she said.
"It's the same case across much of Canada: Hotels have to be built with condos to subsidize their construction," Rosszell said. "Standalone hotels are unheard of these days."
Although demand growth has been slower in downtown Montreal, occupancy this year is forecast at 72 percent, an increase of five percentage points compared with 2013. The market's supply is projected to decrease 5.1 percent this year and has lost several hotels recently, including the Hotel Maritime Plaza and a 711-room Delta that closed last year to be converted to student housing, she said. "All that disappearance of hotel rooms gives power to the hoteliers," she added.
Hotel development in Canada today largely centers on resource-based markets, particularly in Alberta, which will be home to about a third of the hotel rooms projected to open in the nation through 2017, according to HVS. The firm projects Calgary will add 3.3 percent in hotel supply this year and 10.5 next year, enough to push occupancy down three percentage points to 69 percent.
Even so, HVS also projects Calgary's average daily rate in 2015 will increase 3 percent to $170.
"That new supply will push up the average rate, because these are new, quality hotel rooms that require a certain level of rate," Rosszell said. "There will be much more flexibility in negotiating, because hoteliers are trying to deal with the new supply coming in, but despite this, they'll continue to push the average rate."
Halifax also has seen above-average development, spurred largely by a $25 billion shipbuilding contract awarded by the federal government a few years ago to the city's shipyard. With such new hotels as a dual-branded Homewood Suites and Hampton Inn opening downtown this year, HVS projects the Halifax supply will increase 4.9 percent this year and 2.5 percent in 2015.
The firm projects occupancy this year will decline 2 percentage points to 63 percent and make up that loss in 2015 as demand picks up.
"The new demand hasn't come in yet, so occupancies are low, but we anticipate they will be significantly higher," Rosszell said.