Canada Hotel Industry Shows Signs of Strong Recovery with RevPAR, ADR, and Transactions Surge in 2023

The hotel industry in Canada faced unprecedented challenges in the last couple of years due to the pandemic crisis and what followed after that.

For now, one would assume that it’s not the ideal time to invest in hotels with record inflation and high interest rates, and soaring operating costs but facts show a different scenario.

Dynamic pricing strategies, robust planning, adjustments to the new norms of remote work, and a resilient hotel industry could cope with the looming financing challenges including fears of a recession in Canada.

Canada Hotel Industry - The Year So Far (in Numbers)

The key numbers from the hotel industry for the year 2023 so far have demonstrated a strong comeback of the industry.

The reposed trust of investors in the hospitality industry backs these numbers too. Some of these key figures have reached the pre-pandemic level stats while others have surpassed them.

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Data Source: INNvestment Canada Q2 2023 Report

Most analysts and investors want to compare these top-line figures from the pre-pandemic years, so it’s a good idea to keep an eye on current numbers in comparison with those in 2019 or prior.

●      Occupancy:            63.1% up 1.28% from Q2 2022

●      ADR:                         $189 up 15.24% from Q2 2022

●      RevPAR:                  $119 up 33.7% from Q2 2022

And these numbers are good enough to boost investors’ trust further if they want a comparison with key figures from 2019 too.

●      Occupancy:            63.1% up 17.06% from Q2 2019

●      ADR:                         $189 up 18.86% from Q2 2019

●      RevPAR:                  $119 up 20.20% from Q2 2019

Laura Baxter, CoStar Group’s director of hospitality analysts for Canada said, “Canada’s hotel industry is benefitting from elevated spending on discretionary services.”

She further added that although the group demand surged in 2023 but remained significantly lower than the pre-pandemic levels.

A consistent stream of interest rate hikes, soaring inflation, rising costs of operations, and other factors combined meant the hotel industry would raise prices.

The adjustments meant positive figures for the average daily rates while the occupancy rate also remained healthy unexpectedly.

Despite soaring inflation, Canadians and foreign tourists did not hold back and luxury spending remained the catalyst for these healthy top-line figures so far.

Transaction Volume Surge in 2023

The hospitality and Hotel industries were the hardest hit during the pandemic crises from 2020 through 2022.

It wouldn’t surprise many that the hotel industry in Canada didn’t perform well in these years.

What surprised many was the resilience shown by the hotel industry and a faster recovery than many would have anticipated.

The influx of travelers, higher ADR, improved RevPAR, and a bright future hooked investors, and the number of transactions soared in Q2 2023 further.

●      $1.05 billion - the YTD hotel transaction volume

●      90%  of these transactions were for ongoing hotel use

●      9 transactions of $25 million mark

●      $13.7 million - the average deal size

●      $192,100 Average Price/Key

These numbers are not staggering but can be counted as normal activity level figures. Thus, we can say, the hotel industry is back to the pre-pandemic level.

Although investors’ interest is piqued by positive activities in the industry so far, they might keep a close watch on some critical factors.

For instance, more Canadians are traveling abroad. It means hotels and their stakeholders would want more international tourists in Canada.

Key Challenges for the Hotel Industry in Canada

Albeit healthy financial figures for the first half of 2023, all stakeholders are wary of key challenges faced by the hotel industry in Canada.

High-Interest Rates

The Canadian economy might have dodged a recession for now but there are no signs of interest rate descent.

It means significantly higher borrowing costs for hotels as well as investors looking for acquisitions.

Then, we’ll have to keep an eye on the short to mid-range financing deals expiring in an extremely higher interest rate environment too.

However, a positive sign from lenders has been the acceptance of all types of borrowing applications including those with a young credit history.

High Inflation

Rising costs of operations can be absorbed with higher room prices. But it would work to a certain extinct and beyond that would be a challenge for the industry in Canada.

The hyper-inflation scenario results in lower purchasing power of the public and they would turn to saving from discretionary spending first. Although Canadians showed no signs of refraining from their luxury spending in the last year or so.

Labor Shortage

Canada’s labor shortage foes are not new nor do they only relate to the hospitality sector. Yet, it remains a significant challenge for hotels to combat the labor shortage problem.

Like most other sectors in Canada, the existing staff works additional hours to make up for the labor shortage.

However, with more businesses adopting remote work and hybrid work models, hotels can find flexible solutions to the rigid problem.

Canada Hotel Industry - Future Trends to Watch Out

The recent wave of generative AI tools made a splash and we saw mushroom growth in AI apps through the open-source data available.

These developments could trigger inspiration in customer services, financing, and social media marketing by using generative AI tools.

On the other hand, travelers and tourists are getting more environmentally conscious. They plan to travel and partner with companies having a nature-friendly policy.

Similarly, we’ll see rising trends in inclusive traveling and sustainable operations in the hospitality industry.

Individual units spending time and resources on futuristic tools would harness deeper benefits faster than others.

While investors are regaining confidence with higher ADR and RevPAR figures, they might get worried by consistently higher interest rates, labor shortage, and a hyperinflation environment.

Even if we take a conservative take, we can expect the transaction volume in the hotel industry to double to a figure of $1.9-2.0 billion by the end of 2023.

Similarly, we can anticipate the ADR, occupancy, and RevPAR figures to slightly improve with travelers opening up further when we see a slight dip in the interest rates in the coming months.

Data Sources:

●      Colliers Hotels | INNvestment Canada Hotel Report Q2 2023 (adobe.com)

●      Canada hotel ADR and RevPAR reach all-time high in June | STR