Canada's hotel industry began showing signs of a comeback in the first quarter.
Essential corporate and leisure demand drove Canada's hotel occupancy to just above 30% in March 2021, which is a marginal improvement over March 2020, said Laura Baxter, director of hospitality analytics in Canada at CoStar Group. While that's good news, hotel occupancy in Canada is still halfway to the 60% occupancy average seen over the last three years nationwide.
In the first quarter, hotel revenue per available room decreased 55% year over year. But beginning in March, transient demand showed some positive trends, she said.
"The group segment is still bringing down the average, while the reverse is true for the transient segment," she said. "The lack of substantial decline in transient RevPAR in March stands out. This is a result of growth in transient demand in March 2021 versus March 2020 and is one of the first data points to push out of the red — up 13%."
But when compared to March 2019, transient demand this March was down 38%, she added.
At the market level, airport submarkets in Vancouver, Toronto and Montreal have benefited from quarantine demand, Baxter said.
"Mandatory three-day hotel stays for all international inbound travelers continues to benefit government-approved hotels in Toronto, Vancouver and Montreal airport submarkets," she said. "The highest occupancy and [average daily rate] are being achieved in Vancouver — not surprising given Vancouver typically achieves the strongest performance of any airport submarket."
More than a year of the global COVID-19 pandemic hasn't slowed the hotel pipeline in Canada, and an increase in hotel rooms will affect recovery in some markets, Baxter said.
"There are currently just fewer than 9,000 rooms under construction expected to open between 2021 and 2023," she said. "This amount of new supply will also add pressure to the recovery. The new rooms are heavily weighted towards Ontario and Quebec, representing a 3.2% and 2.6% uplift on existing room supply."
Similar to the U.S., local Canadian governments have purchased hotels to convert them into residential housing. Such deals led hotel transactions in Canada during the quarter, specifically in Vancouver and Toronto, Baxter said.
There is optimism for recovery as the pace of Canada's vaccine rollout picks up.
"The slower vaccine rollout compared other countries has been frustrating at best and devastating for many. ... In geographies that have higher vaccination rates, we are seeing a strong rebound in hotel performance," Baxter said. "In the U.S., demand in economy class hotels and ADR in the luxury class has been trailblazing the recovery — both of which are nearly back to 2019 levels.
"As the vaccine rollout gathers momentum and the variant case counts decline, we expect conditions to be presented for a similarly strong rebound in Canada."
For Baxter's full insights, watch the video above.