Canada’s Hotel Investment Industry Still Shaken by Recession’s Aftershock: Colliers International Hotel’s Annual Report Finds

Still under the ripple effect caused by the recession that hit global markets two years ago, Canada’s hotel investment industry experienced yet another challenging year as transaction volume and values continued to spiral downwards, according to Colliers International Hotel’s Canadian Hotel Investment Report released today. Total transaction value declined by 61 per cent from $1.1 billion in 2008 to just over $400 million over the past year, representing only 74 non-strategic hotel transactions led mainly by private investors, who represented 60 per cent of the transaction volume.

The relatively low transaction activity and values also translated into a lower average price per room which declined by 44 per cent nationally from $116,500 in 2008 to only $65,500 over the past year. The harsh economic conditions also weighed on the lodging industry’s operational environment pushing occupancy and average daily rates downward by eight per cent and 12.3 per cent respectively1.

“Although 2009 proved to be one of the most challenging years for Canada’s hotel industry, it still performed better than other world markets, notably the U.S.,” says Alam Pirani, Executive Managing Director with Colliers International Hotels. “The relative resiliency of our domestic lodging industry was also evident by the marginal number of distressed, lender-driven or foreclosure sales over the past year that helped shelter investors from significant devaluations of their portfolios.”

Regional Breakdown



While the majority of hotel transactions occurred in Eastern Canada (61), mainly in Ontario with 48 transactions which account for half ($212.9 million) of the total deal volume over the past year, the average price per room yielded by these deals ($61,900) was below the national average ($65,500) and significantly lower than the average price per room in Western Canada ($113,400).  The lion’s share of activity in Western Canada occurred in Alberta (10 transactions) followed by British Columbia (2) and Yukon (1).

The continuous deterioration of the economic environment also took a toll on the average hotel value, which further declined by 7.3 per cent in 2009, according to Colliers’ Hotel Value Index, which measures hotel values based on various market indicators. The sharpest value declines occurred in Toronto Airport West (-14.7%) followed by Victoria and Toronto Downtown (-12.3% and -10.2%, respectively).  On the upside, Colliers International Hotels’ outlook for 2010 expects some increases in hotel value, mainly in Regina (4.5%), Whistler (3.7%) and Ottawa (3.6%), with a national average climbing by 1.3 per cent.

“Historically, the leisure and hospitality real estate industry tends to lag other markets in terms of economic conditions’ impact on performance and activity,” adds Tom Andrews, Senior Vice President with Colliers International Hotels. “While globally some degree of uncertainty still lingers with regard to economic recovery, the strong rebound of the Canadian economy in recent months and improved access to debt signal a turning point that could fuel transaction activity later in 2010 and into 2011.”   

Additional findings and figures:

- Sixty new hotels opened across Canada in 2009, edging the national room supply by a marginal 1.5 per cent.

- The largest transaction completed in 2009 was the Hilton Garden Inn & Ajax Convention Centre, which sold for $24 million.

About the report
The 2010 Canadian Hotel Investment Report provides an analysis of the investment fundamentals that drove the Canadian lodging industry in 2009 and outlines the forecast for 2010 including data and intelligence on a variety of market measures such as transaction volume, per room pricing, buyer profiles, capitalization rates and room supply. The report also includes the Colliers Hotel Value Index which monitors the annual rate of change in hotel values on a year-over-year basis. Rate of change is based on operating performance of a market, industry trends and the return expectations of investors.
 
To obtain a copy of the full report, please visit www.colliershotels.com/research/reports

About Colliers International
Colliers Macaulay Nicolls Inc. (CMN), operating as Colliers International, is a leading global real estate services company that provides a full range of services to real estate occupiers, developers and investors worldwide. The organization’s 12,700 employees span the globe in 294 offices in 61 countries.  On a worldwide basis, Colliers manages more than 1 billion square feet and has revenue of $1.6 billion. Services include brokerage, property management, hotel investment sales and consulting, corporate services, valuation, consulting and appraisal services, project management, mortgage banking and research.  Colliers International is a worldwide affiliation of independently owned and operated companies.

1 Source: PKF Consulting