Development picks up north of the U.S. border

The 135-room Fairfield by Marriott Edmonton International Airport, which is owned by K5 Investment Group and managed by Hotel Equities, is slated to open in July in Alberta. Photo credit: Hotel Equities

While hotel development surged in the United States during the past several years, growth in the number of guestrooms and hotels in Canada has been more moderate. That is changing, however, with supply growth nearly tripling in 2019 as more active construction pipelines advance across the country.

According to the most recent “Canadian Hotel Investment Report” from Colliers International Hotels, national supply growth, which has been averaging 1 percent per year for the past decade, is expected to reach 2.7 percent this year, a 10-year high.

“Strong roomnight demand and a decade of slow supply growth have created new opportunities for investors to build hotels,” according to Fraser Macdonald, senior analyst with Colliers. “While construction costs and development approvals are certainly barriers in many markets, we are at a stage where lodging developers have greenlighted projects based on the profit outlook in markets across Canada, many of which are operating at record highs.”

According to Lodging Econometrics, at the end of Q1 the total construction pipeline in Canada comprised 33,023 guestrooms and 264 hotels. Both numbers are up 11 percent year over year.

A driving force of the pipeline’s double-digit growth is the surge in projects in the early planning stage with 11,328 guestrooms and 80 projects, up 53 percent and 48 percent year over year, respectively, according to LE. Currently, there are 10,466 rooms in 93 projects under construction and 11,229 rooms in 91 projects scheduled to start construction in the next 12 months.

The jump in early planning counts YOY is the result of a record number of new projects being announced in fourth-quarter 2018: 5,390 rooms in 36 projects. Many of these projects entered the pipeline in the early-planning stage.

 “Product type has really been driven by local market fundamentals; we are seeing new full-service, boutique and luxury development in the downtown cores of major cities and focused- and limited-service product in suburban and secondary/tertiary markets,” according to Macdonald. “On an aggregate basis, the limited- and focused-service segments have been the most favored given the lower overall construction cost, quicker development time and efficient operating model.”

LE expects 5,578 guestrooms in 51 hotels to open in 2019. In 2020, counts are expected to rise with 7,005 rooms in 62 projects forecast to open. Should all these projects and rooms come online, this will be a record high of new hotel openings for Canada.

“Canada’s deep bench of domestic hospitality investors are driving the current cycle of development with activity from private investors, hotel investment companies and real estate companies,” Macdonald said. “In part due to a lack of product available for sale and rising values, these well-capitalized groups are increasingly looking toward new construction.”