Though hotels in Canada are not yet performing at pre-pandemic levels, there are signs showing the industry is on a steady path toward recovery.
During CoStar's webinar "Navigating Challenges and Searching for Opportunities in the Post-Pandemic Hospitality Industry," analysts explained how Canada's economy and hotels have progressed over the past 19 months and where they are headed.
In a separate video, Laura Baxter, director of hospitality analytics for Canada at CoStar, provided a third quarter Canadian hospitality update. Hotels in Canada reported key operating metrics reached pandemic-era highs, with revenue per available room reaching 71 Canadian dollars ($57.21), up from CA$29 in the third quarter last year.
“The recovery accelerated in each month from May until reaching a peak in August when monthly performance reached 73% of the three-year average before the pandemic,” she said. “Following the typical seasonal pattern, RevPAR contracted in September compared to August, but the recovery also decelerated slightly to reach 67% of the pre-pandemic average.”
To hear more of what Baxter had to say about the Canadian hotel industry during the third quarter, watch the video above.
Economic Impact
COVID-19 continues to leave its footprint over Canada, said Carl Gomez, chief economist and head of market analytics for Canada at CoStar. There have been modest improvements in the economy, particularly after restrictions eased further in September, but the recovery has not been equal across all sectors.
“Generally speaking, we are starting to see improvements, but we’re not back to the pre-pandemic levels,” he said.
One positive for hospitality is the increased level of business investment in machinery equipment, which is generally a good proxy of business travel, he said. As businesses invest in machinery and equipment, they also invest in sending their workers out to travel.
Inflation is another factor affecting the macroeconomic environment, Gomez said. It’s reached a multi-decade high of above 4% year over year, driven by the transitory effects coming out of the downturn as well as the global supply-chain challenges. While the transitory effects should return to normal levels, the supply-chain issues involving ports and trucking are ongoing and will continue to drive prices.
“Inflation is going to be less transitory than a lot of people expect and ... it will live for as long as COVID is around as well,” he said.
The question remains when consumers will return to normal behavior, Gomez said. There has been a large shift among consumers toward the home economy. People are cooking at home more, streaming more video content on TV and through mobile devices and shopping online more often. On the flip side, fewer people are staying at hotels, booking flights and taking part in public and social activities compared to before the pandemic.
There has been a behavioral shift since the start of and throughout the pandemic, he said.
“Until COVID fully goes away, we're still going to be dealing with some of these psychological shifts,” he said.
Hotel Data
The recovery of Canada’s hotel industry from the pandemic accelerated and decelerated generally as the number of COVID-19 cases increased and decreased, Baxter said. When public health conditions worsened, the recovery decelerated, and when conditions improved, the recovery accelerated.
During the fourth wave of COVID-19, however, the trend decoupled and the recovery continued to accelerate even as the number of cases increased, she said. The change was the strong vaccination rate in Canada, giving people the confidence to travel and stay in hotels.
Hotel revenue per available room peaked in August 2021 at 72% of 2019 performance and then followed the typical seasonal trend of contracting in September, she said. It decelerated a bit in September, hitting 67% of 2019 levels.
"But it is great to see that the recovery is accelerating again over the past few weeks and in October," she said.
As provincial travel restrictions relaxed in June and July, there was a tremendous amount of demand over the summer, Baxter said. Occupancy peaking in August at 67% of 2019 levels coincided with the reopening of the U.S. land border. Border crossings increased by 75% over the nine-week period after the opening of the border.
Some hoteliers Baxter spoke to said there has been a gradual uptick in reservations from American guests, but most of the demand recovery was driven by domestic travelers.
Average daily rate has been on a positive trend, and it didn’t contract as much as occupancy did during the early days of the pandemic, she said. The recovery trajectory for ADR hasn’t been as steep, but that’s because it didn’t fall as much as expected. The week ending Oct. 16 was down only CA$15 compared to the comparable week in 2019.
Group and transient groups were two guest segments hit hard by the pandemic, Baxter said. Transient group, which involves groups booking one to nine rooms, was moving the recovery in September, achieving 87% of 2019 levels. Groups booking rooms of 10 or more were at 28% of 2019 levels.
The pandemic hit corporate travel hard as well, with a fourth wave of cases leading to companies delaying plans of returning employees to offices and restarting corporate travel, she said. Group and corporate travelers typically stay at full-service hotels, so the occupancy recovery for these hotels is further behind limited-service hotels.
Emerging recovery patterns present some challenges in forecasting at a market level, but current forecasts have been upgraded, and the long-term trend shows all three key performance indicators should come close to reaching 2019 levels in 2024, Baxter said.
In absolute terms, general operating profit is down compared to 2019 levels, but “leaner operations that were adopted through the early days in the pandemic have certainly sustained much higher margins,” she said.
In Canada's six major markets, hotel sales volume was driven by owners repositioning hotels, with many being converted to residential and senior housing, Baxter said. In Vancouver, about 90% of the sales volume was redevelopment plays.
“More recently, we're seeing more traditional trades taking place, but what's been consistent throughout the year is that there have been very limited discounts on pre-pandemic pricing and also a limited amount of distress,” she said.