Developers expand their presence in strong Montreal market

Hotel Exterior
As the cosmopolitan center of French-speaking Quebec, Montreal features a range of established, premium-branded hotels from traditional to trendy. The inventory encompasses the stately Queen Elizabeth Hotel (a trophy Fairmont Hotels & Resorts asset) to the hip W Hotel Montreal, from purpose-built (Ritz-Carlton) to adaptive reuse (W again). Independent hotels also fit prominently in Montreal’s lodging mix, Hotel 10 and Hotel Nelligan being two examples.

As Canada’s second largest city, Montreal vies with its No. 1 rival, Toronto, for hotel development dollars. Much of the development activity in Montreal today, however, isn’t upper upscale or luxury. The barriers for entry are too high and available land to build on too scarce.

Supply growth

Rather, development more often is occurring in the upper-midscale category, which is more cost effective to build and to operate. Representative is the 221-room Hilton Garden Inn Montreal Centre-Ville, a tower visible on the city’s skyline. Traditionally, brands like these were found in a three-to-four story prototype in highway, airport and suburban locations, rather than city centers.

In June, IHG unveiled plans for its fifth Holiday Inn in the city, IHG’s 12th hotel in the greater Montreal market. Local developer Groupe Canvar, which is building the 40-story, 225-room Holiday Inn, also has Hilton Garden Inn and Courtyard by Marriott in its portfolio. Completion is scheduled for mid-2017.

Meanwhile, traditional suburban development in the market continues. Realstar Hospitality, for example, this month opened an 82-room Days Inn Montreal East in the Montreal suburb of Saint Leonard. Realstar owns and operates 105 hotels across Canada.

Other global hotel companies have jumped in as well. France-based AccorHotels, a natural, given the market is French-speaking Montreal, already has an economy-tier Ibis hotel in the market and is also represented with its full-service Sofitel and Novotel brands.

And why shouldn’t developers want to expand their presence in a market with both strong, consistent business and leisure demand generators? Data from HVS suggests that in recent years Montreal has been outperforming the country as a whole in terms of revenue-per-available-room growth by roughly three-to-one. With such positive numbers, developers, as well as owners and investors, continue to see opportunity.

Given the depth of the market, analysts often distinguish between the downtown Montreal market and the airport submarket. Brands like Hilton Garden Inn and Days Inn, for example, will have a property in both.

Analysts see hotel values steadily increasing across the board. Downtown values rose between 3.4 percent and 4.3 percent a year during the past three years, while at the airport the spread was somewhat narrower (3.4 percent to 3.7 percent).

Future snapshot

According to Lodging Econometrics, there were 134 hotels accounting for 20,720 guestrooms operating in the city at the end of the first quarter 2015. Five more were in the pipeline, accounting for 700 more rooms, and scheduled to open between this year and 2017.

Fueling investor confidence has been Canada’s larger economic picture. Following a discouraging first quarter, Canada’s economy is expected to turn around through the remainder of 2015 and to continue that positive momentum into 2016, which is music to the ears of the country’s leaders. According to the Organization of Economic Cooperation and Development, Canada’s economy will grow a modest 1.5 percent this year, but the rate of growth will jump to a healthier 2.3 percent in 2016.

As in the U.S., interest rates in Canada have been at historic lows, enabling developers and lenders to do deals and giving consumers an added incentive to go out and spend on travel.