The market for hotel investment in Canada experienced a stellar year in 2012, and the next 12 months are shaping up to be even busier, according to the 2013 Canadian Hotel Investment Report released this week by Colliers International Hotels.
Deal activity during the past year reached nearly $1.2 billion, which is one of the highest transaction volumes measured in a decade, surpassing the $1.1 billion recorded in 2011.
According to Colliers Hotels’ forecast for 2013, the market is expected to outshine this performance as evidenced by deal flow already recorded in the first quarter of the year, which exceeded the $384 million reported in the same period of 2012.
“The pace and scale of transaction flow in 2012 provides a good indication of the direction the market is heading this year and beyond,” says Alam Pirani, executive managing director with Colliers International Hotels. “Unlike the 2005 to 2007 era, when deal volume surged mainly due to one-off strategic acquisitions, the current up-cycle stems from traditional transactions and reflects a healthy market supported by the strength of other commercial real estate sectors, improving economic indicators and low borrowing costs.”
As the Canadian economy continues to improve with solid employment levels and increased consumer confidence, hotels’ operating performance followed suit in 2012. Revenue per available room grew 2.4 per cent (1.2 per cent in 2011), with national occupancy at 62.4 per cent (61.9 per cent in 2011), and the average daily rate rising to $129.89 compared to $127.93 the year before.
The strength of the Canadian economy and the renaissance in other commercial real estate sectors such as the office and retail markets have created new dynamics among hotel investors. Real estate companies emerged as the leading investor group in 2012, accounting for 43 per cent of total acquisitions, primarily for redevelopment. Private investors were the second largest group with nearly one-third (29 per cent) of acquisitions, followed by REITs and C corporations at 17 per cent. Hotel investment companies, which dominated activity in 2011, saw their representation fall to 10 per cent of total transaction volume.
“The heated retail and office investment markets in Canada and globally are affecting the lodging sector as well,” says Robin McLuskie, vice-president with Colliers International Hotels. “As the competition for office and retail investment intensifies, it pushes non-traditional hotel investors to set their sights on the lodging sector as a viable investment sector, given the premium returns relative to other asset classes. Given the short time we’ve been in this up-cycle, it presents a great opportunity for new investors to enter the hotel market.”
