Hotel real estate transactions in Canada reached $4.1 billion in 2016, with the sale of more than 240 hotels. This is the second highest amount on record, and 2017 is shaping up to be another big year in the industry.
According to Colliers International Hotels’ 2017 Canadian Hotel Investment Report, last year’s transaction volume was almost 70 per cent higher on a year-over-year basis, with foreign capital a prominent theme.
In fact, cross-border investments and traditional price per room metrics ($99,000) reached new heights. Foreign capital represented $2.75 billion of the total transaction volume and 100 per cent of strategic transaction activity. As a result, strategic transactions accounted for $2.54 billion.
“The low Canadian dollar, the outflow of Chinese capital, hospitality assets’ generally higher yield, and hotels’ strong operating performance are increasing liquidity in the market,” said Alam Pirani, executive managing director, hotels. “A weaker loonie offers investors greater purchasing power. Canada’s stable economic and political environment is an ideal destination for capital flight from China. Hotels deliver returns that averaged 210 basis points higher than those of other real estate investments in 2016. And the industry continually exhibits strong operating performance, with demand outpacing new supply over the past decade.”
The Four Seasons Hotel was the year’s top asset transaction, with American buyer Shahid Khan laying down $225 million. Portfolio-wise, Bluesky Hotels and Resorts, a privately-held Canadian corporation backed by Hong Kong capital, closed on Innvest REIT for $2.1 billion.
Regionally, the fastest growing markets in terms of revenue per available room are Windsor, Ont, Toronto Downtown, Vancouver/South Surrey, B.C., Vancouver Airport, B.C. and Banff, Alberta, according to Smith Travel Research.
Hotel outlook 2017
Buyers remain eager for hotel real estate. More than $3 billion in sales is expected for 2017, with a $1 billion portfolio transaction already completed in Q1.
Market forces are vast and varied, for instance, international travel into Canada due to a weak dollar, and the big boost in hotel activity expected from all the marketing and investments going Canada’s 150th anniversary.
Robin McLuskie, vice-president, hotels at Colliers says we should expect foreign capital to keep coming in.
“We anticipate annualized supply growth to reach between 1.5 per cent and 2 per cent in the next two to three years,” she said. “Hard-hit energy markets are rebounding, setting up these regions for increased activity. Plus the combination of Canada’s weak dollar and significant promotion around the country’s 150th anniversary should make 2017 a peak year for travel into Canada.”
Interest will mostly target Toronto and Vancouver, but limited opportunity in these markets may push investors to look at markets like Ottawa, Montreal and Calgary. Energy-linked markets like Alberta and Saskatchewan are expected to rebound.