Canada’s Hotel Industry: A Year of Mixed Performance Amid Economic Shifts

National Overview: Steady Growth Amid Economic Pressures

Canada’s hotel industry has demonstrated encouraging resilience through Q3 2024, with national figures reporting a modest increase in RevPAR by 3.5% year-to-date, reaching $142.39. This growth has been largely driven by a 3.7% rise in ADR (Average Daily Rate) to $211.54, counterbalancing a slight 0.2% dip in occupancy, which settled at 67.3%. These results reflect a return to normal market dynamics after the pandemic’s disruptive effects, even as economic factors like inflation and fluctuating interest rates continue to challenge operators.

Regional Performance: Varied Results Across Provinces

Regional performance revealed clear contrasts in results. Alberta emerged as a leading performer, with RevPAR jumping 8%, fueled by strong demand and higher ADR. Similarly, British Columbia, Saskatchewan, and Quebec saw a 4% increase in RevPAR, benefiting from consistent summer tourism and strong market conditions.

Other provinces, like New Brunswick and Ontario, experienced more modest growth of 3% and 2%, respectively, signaling stable but unspectacular market conditions.

On the flip side, provinces like Prince Edward Island (-4%) and Newfoundland and Labrador (-2%) posted declines, reflecting strong base years in 2023 and some challenges in maintaining 2024 momentum. Manitoba and Nova Scotia also faced moderate performance declines due to reduced demand.

Urban Centers: Victoria Leads, Winnipeg and Halifax Struggle

Among major cities, Victoria posted the highest RevPAR increase (+13.7%), driven by a robust summer tourism season. Edmonton, Calgary, and Montreal also saw impressive gains, highlighting a recovery in both leisure and business travel. Vancouver, Ottawa, and Toronto showed slower but steady growth, with RevPAR increasing by 2.9%, 1.7%, and 1.2%, respectively.

Conversely, Halifax and Winnipeg faced significant declines in RevPAR, down by -2.4% and -4.1%, respectively. Winnipeg was particularly affected by reduced demand for government and contract-related business.

Industry Challenges: A Balancing Act

Short-Term Rentals:
A McGill University study showed that municipal short-term rental regulations saved British Columbia renters over $600 million in 2023, but these measures have added complexity to the competitive landscape for traditional hotels.

Labour Costs:
Labour remains a significant cost burden, particularly in resort regions like British Columbia. Rising wage pressures are eating into profitability, forcing hoteliers to explore operational efficiencies to manage these rising expenses.

Economic Uncertainty:
Although there is optimism around potential interest rate reductions in 2025, tight lending conditions (low loan-to-value ratios and constrained debt coverage ratios) continue to make capital access difficult for some hotel operators.

Innovation and Opportunity: Adaptability is Key

Office-to-Hotel Conversions:
Calgary’s initiative to subsidize office-to-hotel conversions has created new opportunities for the industry. An example of this trend is the transformation of an office building into the extended-stay Element by Westin, though such projects still face challenges like limited parking infrastructure.

Investor Interest:
Luxury hotels are increasingly attracting investor attention, with RevPAR growth bolstered by consumer demand for premium, high-end experiences.

Global Trends and Insights: Looking Beyond Canada

At the International Society of Hospitality Consultants’ conference, global travel trends highlighted slowing growth post-pandemic, but with emerging destinations like Saudi Arabia and India seeing substantial tourism expansion. Hotels in these regions are adapting to shifts in consumer behavior, focusing on tailored experiences and smaller development sizes due to land cost constraints.

Future Outlook: Preparing for Evolving Dynamics

The Canadian hotel sector is poised for the future, with a focus on operational efficiency, ADR optimization, and navigating regulatory changes. While regional and urban discrepancies exist, the industry is adapting to shifting demand, and innovations in development and services are positioning Canadian hotels for long-term growth. By staying flexible and responsive, operators can leverage emerging opportunities to thrive despite ongoing economic uncertainties.