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 today 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. Furthermore, 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 has exceeded the $384 million reported in the same period of 2012.
“The pace and scale of transaction flow in 2012 provide 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 2005-2007 era when deal volume surged mainly due to one-off strategic acquisitions1, 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-Room2 grew 2.4 per cent (1.2% in 2011) with national occupancy at 62.4 per cent (61.9% in 2011) and 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%) of acquisitions, followed by REITs/C-Corps 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,” adds 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.”
Regional Transaction Analysis
Similar to 2011, transaction activity in 2012 was relatively balanced between Western and Eastern Canada. Of the total 116 hotels switching hands over the past year (a 17.2% increase from 2011 and the third highest number in a decade), 66 were in Eastern Canada ($605 million) and 50 were from Western Canada ($573 million). The disparity, however, was on a Price-per-Room with the West at 28 per cent higher than the national average, driven by resource markets in Alberta and Saskatchewan. When compared on a Price-per-Room basis, average prices paid were 28 per cent higher in Western Canada when compared to the national average, due in large part to the resource markets of the west.
*All figures are in Canadian Dollar
On a provincial level, Ontario led the pack in terms of volume and number of trades ($460 million, 50) followed by Alberta ($391 million, 30) and Quebec ($135 million, 13). On a local level, Toronto marked the highest deal volume ($289 million) per city, followed by Edmonton($121 million), Montreal ($112 million) and Calgary ($80 million). Other cities that made their mark on the hotel investment map in 2012 included Vancouver ($61 million), Fort McMurrayand Grande Prairie ($56 million each), Victoria ($48 million) and Saskatoon ($37 million).
Tom Andrews, Senior Vice President with Colliers International Hotels in Vancouver, says, “As Colliers previously forecasted, 2012 ended up being a banner year and the prospect for 2013 is even brighter considering all the factors that impact market performance.” Hotel values in Canada continued to increase during 2012 by four per cent based on the Colliers Hotel Value Index, which measures hotel values based on various market indicators. “Our forecast for the next 12 months calls for another four-and-a-half per cent increase in value,” adds Andrews.
The markets with the most significant hotel value growth in 2012, based on the Colliers Hotel Value Index were Calgary (7.0%), Edmonton (5.7%), Regina and Saskatoon (5.5% each),Downtown Toronto (5.2%) and Winnipeg (4.2%). For 2013, hotel value growth in Calgary is expected to remain the highest across the country (7.9%), followed by Downtown Toronto (6.7%), Edmonton (5.9%), Regina and Saskatoon (5.8%) with Downtown Vancouver closing the list (5.4%).
About the Report
The 2013 Canadian Hotel Investment Report provides an analysis of the investment fundamentals that drove the Canadian lodging industry in 2012, as well as a short-term forecast for deal activity in 2013. The report includes data and intelligence on a variety of market measures such as transaction volume, per room pricing, buyer profiles, capitalization rates and room supply. Also included is the Colliers Hotel Value Index, which monitors the annual rate of change in hotel values on a year-over-year basis.
Note to editors: A copy of the full report, including the Colliers Hotel Value Index covering 17 major markets across Canada, can be found at: http://www.colliershotels.com/2013/CHIR/CHIR-March2013.pdf
1 Traditional Volume excludes Strategic Transactions which are defined as trades with exceptional circumstances such as privatization, large portfolio take-downs or one-off buys.
2 Source: STR and HVS
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