The major hotel markets in Eastern Canada each tell a different story, according to panelists at the Canadian Hotel Investment Conference.

By Samantha Worgull
Editorial Assistant
[email protected]

Editor’s Note: This is the first in a two-part series about different hotel market subtleties that bring distinction to Eastern versus Western Canada.

TORONTO—The Eastern Canadian provinces during 2013 led the way in hotel transactions when compared to the Western Canadian provinces, but the absence of the United States’ “rubber-tire-traveler” has greatly affected the region’s hotel performance, according to panelists at the Canadian Hotel Investment Conference.

During a breakout session titled “Cross country review: Eastern Canada,” which was the first of two sessions that dove into the market subtleties of Eastern versus Western Canada, panelists discussed trends within some of Eastern Canada’s top hotel markets.

Eastern Canada, for the purpose of this article, comprises the following provinces: New Brunswick; Newfoundland and Labrador; Nova Scotia; Ontario; Prince Edward Island; and Quebec. In Ontario and Quebec, 66 hotel transactions totaling $1.1 billion were made during 2013, according to CBRE Hotels. Of the 66 hotel transactions, 60% were in the Greater Toronto Area and comprised almost 60% of the region’s total volume.

Toronto
While Toronto saw a great deal of transaction activity, the market is a story of two submarkets, said Philippe Gadbois, senior VP of operations at Atlific Hotels, which operates 55 hotels throughout Canada.

If hotels are located downtown, the story is good, he said. Otherwise, the story’s not so great.

“Downtown occupancies are healthy, and that sort of hides the rate issue because volumes continue to increase,” he said.

Part of the rate story across Eastern Canada is the drop-off of business from the United States, Gadbois said.

“As hoteliers, it was nice to get U.S. travelers to not question our rates,” he said. “Now, we can’t rely on that customer business or otherwise.”

Despite the slight performance dip at hotels near Toronto Pearson International Airport, Gadbois said: “I remain bullish on Toronto even in the suburb or airport areas. The market continues to grow, and the airport is an incredible engine.”

Revenue per available room in Toronto was at 94 Canadian dollars ($86) through March, according to PKF Consulting, and the downtown market RevPAR was at CA$130 ($119). Panelists agreed that going forward Toronto’s convention center needs to be better marketed to help drive demand.

St. John’s
St. John’s is the largest city in Newfoundland and Labrador, and the land of opportunity at the moment, according to panelists.

“The numbers in St. John’s are pretty strong,” said Serge Primeau, VP of Urgo Hotels & Resorts’ Canadian operations. “It’s the land of opportunity but also challenges. It’s a growing market, and it has been strong over the last few years based on the oil and gas industry.”

Because of that, the supply influx is now being felt in the market, he added.

“Everyone who is there is pretty comfortable,” said Luke Scheer, director of hotels in Eastern Canada for CBRE Hotels. “But supply coming in will start to weigh on the minds of owners.”

RevPAR in the market is up 68% since 2000, according to PKF, and the city has seen a 31% increase in supply. RevPAR is expected to dip a little in 2014 because of new supply. In addition, approximately 200 to 300 additional rooms are being repositioned in the market, according to PKF’s David Larone, who moderated the panel discussion.

Halifax
Halifax is the only market in Canada of consequence, according to Gadbois.

It’s a seasonal city, with its highest occupancies from May to October. Much of that business used to come from U.S. travelers, but with the changes in passport requirements business has dropped off, resulting in a significant blow to the hotel industry, panelists said.

“We believe and remain optimistic about Halifax,” Gadbois said. “The positive impact has been the removal of the Citadel from inventory. The closure of the convention center impacted everyone, but in a couple of years, a new one will open.”

The Citadel Halifax Hotel, owned by SilverBirch Hotel & Resorts, was closed in 2012 to undergo a full-scale multimillion-dollar renovation. The former building complex is expected to be transformed into a mixed-use facility that will feature two new hotels, a residential building with an integrated restaurant and retail space, according to the hotel’s website. The redevelopment project is scheduled to be completed by mid-2014.

Occupancy for the city is running at about 61%, according to PKF.

Quebec City
RevPAR is flat in the city, according to PKF, but Quebec City is considered one of the more stable markets, panelists agreed.

“Nothing in that market is moving to a great extent, either positive or negative,” Primeau said. “It is a market where people tend to hold on to their assets.”

Primeau said there’s a large family-based ownership group in the city and plenty of unbranded properties.

“It’s a very tough market to get into from a development standpoint,” he said.

“Airlift in Quebec City has always been tough,” he added. “Not so much the infrastructure that drives the city, but it’s the market and the demand.”

Gadbois said Quebec City is “one of two Canadian markets that are the same” in reference to Victoria and Quebec City.

At the end of 2013, the Loews Concorde Hotel in Quebec City closed, and 400 rooms exited the system, decreasing supply in the market. There are 10,425 rooms open in the market, according to PKF.

Niagara Falls
Niagara Falls was probably the market most affected by the absence of the “U.S. rubber-tire-traveler,” panelists said. U.S. travelers crossing the border for a weekend at the casino and of bar hopping are a thing of the past, they said, but the market has found ways to reinvent itself.

“The biggest lesson for those of you who don’t really know Niagara Falls, 15 to 20 years ago, pricing was in U.S. dollars. And it was aggressive,” Gadbois said. “If you were Canadian, it sucked. The business model was you make your money during the 100 days of summer, and you just survive in the winter.

“Niagara Falls has had to reinvent itself for Canadians. That means pricing yourself in Canadian dollars. Well, there’s a huge discount there. I never thought the industry there would transform itself as well as it has,” he said.

Niagara Falls’ new operating model has been to focus on total RevPAR, Larone said.

But that doesn’t mean some of the “old-school hoteliers” still operating in the market don’t miss the past.

“A lot of owners there are still waiting for the good old days to come back before they decide to look at transactions,” Scheer said. “Some of the smaller properties that need some renovations are moving.”

According to PKF’s Larone, Niagara Falls is 99% leisure. Occupancy at its peak would be about 62%. Right now, the city is running at about 58% during peak times, he said.

Montreal
Montreal is a city that panelists agreed has a good short-term outlook.

“What we’re seeing (in Montreal) is replacement business,” Primeau said. “There used to be a time when the city was big on U.S. business and group. Occupancy hasn’t changed a whole lot because they replaced that segment with the local corporate segment.”

But the replacement business is not providing the same rate as it once was, Primeau added.

The market is stable despite some hiccups, and the city is seeing some inventory exiting the system, including the Delta Hotel Centre-Ville, which comprised 711 rooms. Gadbois said about 2,000 rooms in total have exited Montreal’s system.

“A couple (of hotels) have come in, but not to impact (performance),” he added.

Investors are interested in the market, said CBRE’s Scheer.

“Buyer groups are saying to us they’re looking to Montreal,” he said. “Groups that had not previously looked at the market are taking notice.”

More on this at https://www.hotelnewsnow.com/Article/13723/Eastern-Canada-markets-tell-different-stories