Canada Hotel Market

Mid-2022 Recap

Market overview

Canada’s hoteliers can see the light at the end of the tunnel. Market performance in July 2022 was the best since the onset of the pandemic with RevPAR recording its strongest-ever result at $162.10, according to STR. The inflation experienced during the last two quarters has bolstered the rise in ADR; however, occupancy rates have reflected strong consumer appetite to travel. The national occupancy rate of 75.5% in July 2022 was at a level not achieved since August 2019 (78.8%) and surpassed July 2019’s result.

In 2020 and 2021, it was clear that certain industries were affected by the pandemic more than others. Among commercial real estate asset types, hospitality has arguably experienced the strongest head winds. The positive

performance metrics reported in July were a welcome change and a well-timed one, as government support programs dried up as of May 2022.

Hotel market performance across the board has improved dramatically in 2022 versus 2021; however, transaction velocity has been down compared with a year ago. From January to July 2021, $386.5 million in transactions were posted in Canada’s major markets. During the same period in 2022, transaction activity was down in terms of both capital (down 10% to $346.8 million) and number of trades (down 44% to 32). Transaction volume in the last four years has come down but three of the four years were heavily impacted by COVID-19.

Investment sales volume by market (Annual)

Investment sales volume by market (YTD July 2022)

The first five months of this year accounted for 28 of the 32 transactions year-to-date*, with a material slowdown taking place in June and July. The two main reasons for this slowdown are, firstly, rising interest rates making financing more difficult to secure and, secondly, hoteliers experiencing positive hotel performance which hasn’t been realized, for many, since pre-COVID-19 times.

Bank of Canada overnight interest rate

Among Canada’s major markets, Toronto (encompassing the Greater Toronto Area and Greater Golden Horseshoe) posted the highest investment volume through July 2022, with $166.8 million. The largest transactions included The Oakes Hotel, Niagara Falls ($112.5 million) and two Banff Hotels acquired by InnVest Hotels for an undisclosed amount. Jeff Hyslop, Senior Vice President, Asset Management and Investment for InnVest Hotels, comments: “Canadian lenders are still in the ‘show me’ phase of recovery but strong Q2 and Q3 results should bolster confidence in the hotel space.” The positive performance shown in July’s STR results is a good indication of what’s to come for the recovery of the industry.

Notable Canadian hotel transactions in 2022 (mid-year)

*Hotel transactions from January 1, 2022 - July 31, 2022

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Curtis Gallagher* Principal Canadian Hospitality Lead +1 416.673.4018 curtis.gallagher@avisonyoung.com

Jolene Keats Director Eastern Canadian Hospitality +1 403.232.4316 jolene.keats@avisonyoung.com

Haig Basmadjian Senior Associate Western Canada Hospitality +1 403.232.4316 haig.basmadjian@avisonyoung.com

Bobby Singh* Associate Eastern Canada Hospitality +1 905.283.2326 bobby.singh@avisonyoung.com

Graeme White* Associate Eastern Canada Hospitality +1 647.598.2318 graeme.white@avisonyoung.com

*Sales Representative

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© 2022 Avison Young Commercial Real Estate Services, LP, Brokerage. All rights reserved. E. & O.E.: Some of the data in this report has been gathered from third-party sources and has not been independently verified by Avison Young. Avison Young makes no warranties or representations as to the completeness or accuracy thereof. Investment sales and hotel market data sourced from Avison Young, Altus Data Studio and STR.