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Toronto Hotels Post Strongest June on Record

Busy Events Calendar Keeps Outlook Positive This Year and Next
Downtown Toronto hotels got a boost from conferences and events held in the city in June. (Getty Images)
Downtown Toronto hotels got a boost from conferences and events held in the city in June. (Getty Images)
CoStar Analytics
August 9, 2022 | 7:36 P.M.

In the earlier days of the pandemic, Toronto was one of the worst-hit cities in Canada, but the tables are finally turning and hotel performance is reaching new heights. In June, metrics not only reached pandemic-era highs but also achieved the strongest June on record. Even on an inflation-adjusted basis, average daily rate and revenue per available room exceeded 2019 levels. Additionally, occupancy, which has trailed the recovery so far, was in line with the highest occupancy ever achieved in June.

There are several reasons behind the success. Overall, it was the perfect mix of relatively low hospitalization counts, pent-up demand for travel, a significant pile of cash stored up from earlier in the pandemic and an extensive list of reasons to visit the city. Transient leisure demand still leads the recovery, reaching between 90% and 100% of 2019 levels since April. The domestic market is mainly driving this, with Canadians taking their first trips close to home and enjoying urban outings. But the biggest difference in June was the return of sources of demand that had been lagging.

June was a busy month for conferences and events, significantly benefiting downtown Toronto. Most notably, Collision — reported to be North America’s fastest-growing tech conference — was held at the Enercare Centre from June 20 through June 23, and more than 35,000 people attended. This was up 40% from the last time the event was held in person in the city in 2019. The week before, from June 13 through 15, the Prospectors & Developers Association of Canada held its annual mineral exploration and mining convention, drawing more than 17,000 attendees to Toronto’s Metro Toronto Convention Centre. The event is typically held in March but was pushed to June as restrictions related to the omicron wave were only just being lifted. June was also Pride month, with several events throughout the month and culminating with its busiest weekend, the Pride Festival Weekend from June 24 through 26.

Although not at pre-pandemic levels, corporate travel also started to rebound. On June 12, the Biden administration lifted its requirement that international travelers test negative for COVID-19 within a day before boarding a flight to the United States. This likely positively affected inbound international travel to the U.S. and also helped international business travel to Canada by lessening the hassle of re-entering the country. Meanwhile, entry into Canada was streamlined through most of June as random entry testing was paused from June 11, but it was reinstated July 19.

Hotels close to Toronto Pearson International Airport and to the west of downtown, however, turned in the strongest performance in June, and again, there were several drivers. According to Statistics Canada, inbound international air travel to airports across Canada neared pre-pandemic levels in June. This was up sharply compared to May, when volume was only about 47% of May 2019 levels. Meanwhile, the number of Canadians returning from abroad was 15 times greater than in June 2021. This surge in demand has overwhelmed airports, and especially in Toronto, resulting in flight cancellations, delayed flights and lost luggage, all of which has created demand for hoteliers nearby. Additionally, given the busy events calendar downtown, compression was created on the busiest nights, and hotels outside the downtown core benefitted. This demand was even felt west of downtown near the airport, accommodating the spillover of guests who were unable to find accommodation or unwilling to pay the higher price to stay downtown.

The pandemic has also suppressed the number of hotel rooms available, with about 1,600 fewer rooms available each night compared to the end of 2019. There are still around 900 rooms closed temporarily related to the pandemic; the remainder presents a net negative position between rooms that were taken out of inventory permanently and new-build inventory coming online.

Another relatively significant factor is that there are fewer short-term rentals available. According to AirDNA data, the number of units available is down by 40% compared to pre-pandemic levels. There are also a variety of drivers behind this reduction, including the new regulations that were implemented in 2020 stating that a unit must be registered and must be the owner’s principal residence, and the fact that many owners searched for long-term tenants when travel demand was low in the earlier days of the pandemic.

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Less hotel and short-term rental inventory eliminated supply-side pressure on metrics. But over time, this will change, with hotels reopening and a development pipeline at a 10-year high of over 2,000 rooms under construction and almost 1,100 in the final planning stage. But for now, the reduction is helping the recovery. Looking ahead, the current reduction in rooms provides insight into how the market could perform if more hotels are repurposed as residential, such as the proposed redevelopment of the 1,590-room Chelsea Hotel Toronto.

The outlook for the city is positive, and the sector is proving it can reach new heights. Preliminary data for July shows a slight month-over-month contraction in operating performance that is slightly steeper than the typical seasonal pattern, but metrics are still trending well above 2019. This is likely due to a very strong June rather than an actual slowdown in the recovery, and we expect August metrics to remain strong, driven by transient leisure demand. More events that were cancelled earlier in the pandemic will take place over the rest of 2022 and 2023, which will keep typical patterns slightly askew over the coming months. Most importantly, this demand will keep the city busy and provide an excellent base of business for hoteliers to build upon.