Though numbers indicate that Canada's economy is technically in a recession, hotel performance metrics are showing a different story.
On CoStar Group's Canada Hospitality Outlook webinar, CoStar Chief Economist and Head of Market Analytics Carl Gomez said the nation's overall economy is slowing down.
"We did have negative growth in the third quarter [2023] .... as you all know, two consecutive quarters of negative growth is technically a recession. Our outlook is that we continue to think that we're going to have a recession partly because there's been a very big slowdown in consumer and business sentiment and investment," he said.
In terms of job growth in Canada, the public and private sector continue to do the heavy lifting while other services including hospitality are lacking recovery from the pandemic.
Despite these headwinds, absolute hotel revenue per available room hit record levels in 2023 compared to 2022 and 2019, said Laura Baxter, CoStar's director of hospitality analytics for Canada.
"Over the last seven months, we've seen an uplift of about 7% year over year and 25% over 2019; so certainly a very good year for the hotel sector. Those higher top-line revenues are helping hoteliers to absorb higher costs throughout their [profit and loss] statement," she said.
Gross-operating-profit levels aren't quite seeing that same lift, she added, but strong revenue growth is allowing hoteliers to pay higher debt servicing costs and to catch up on property improvement plans.
Average daily rate became the main driver of growth for the year, while occupancy growth has slowed the past few months.
"We think that this is the start of weakening demand from both consumers and businesses," Baxter said. "Even though we are seeing some metrics start to soften, we're expecting the full-year position to remain in positive territory both in '24 and '25."
2024, 2025 Forecast
Consistent with the current trends, ADR is likely to remain as the main driver of growth, Baxter said. CoStar's forecast is driven by an econometric model.
CoStar expects the impact of a rescission on Canada's hotel industry will be isolated to the first half of 2024. Baxter said the sector will likely outperform previous recessions.
"That's down to a dynamic between supply and demand. On the demand side of the equation, we are seeing people prioritize experiences more so than in the previous recession, including hotel stays. Also, some hotels are being used as housing off the back of the severe housing shortage here in Canada currently," she said. "Both of these are creating more demand that wasn't actually present in previous recessions.
"On the supply side of the equation, we are seeing limited hotel deliveries of new-build hotels over the past five years. In 2024, we are going to be roughly 50% down on the previous peak in 2018. That strong demand and limited supply-side pressure is supporting our positive top-line forecast even though there are challenges in the wider economy."