The Canadian hotel industry recorded steep year-over-year drops in both demand and revenue in 2020 as the COVID-19 pandemic decimated travel across the country.

In a video discussing 2020 performance metrics, Laura Baxter, director of hospitality analytics for Canada at CoStar Group, said the World Health Organization’s mid-March declaration of a global pandemic was the turning point for Canada’s hotels, which after that experienced a 51% drop in demand and a 60% decline in revenue per available room to 43 Canadian dollars ($33.43).

“The pandemic is having a catastrophic impact on Canada’s key performance indicators with hotel occupancy and RevPAR both reaching a record low in 2020,” Baxter said.

Occupancy dropped to 33% on average, 32 percentage points below 2019 levels. Demand was strongest in the third quarter, as the warmer weather spurred some leisure travel, but dropped again in the fourth quarter “as the second wave of COVID-19 cases started to climb,” she said.

Average daily rate showed more resilience than occupancy and RevPAR, with a year-over-year decline of 21% to CA$130 ($101.07). Baxter said that is welcome news because “rates take a much longer time to recover.”

The pain wasn’t felt evenly across Canada’s hotel industry. Urban hotels that are more reliant on group business experienced greater declines than resorts or other properties driven by leisure business.

“The overall trend was that full-service hotels have experienced worse drops in performance while limited-service [hotels] have fared better,” she said. “With a severe lack of group business, the upper-upscale segment was hit the worst.”

She said the demand declines were also severe in the luxury segment, but those properties managed to hold on to a bit more rate integrity “with some guests still willing to pay for luxury.”

In markets reliant on group bookings, the “typical demand generators … came to an abrupt halt, and people avoided high-density areas,” she said.

“This trend played in favor of resorts and small towns as leisure travelers were drawn to lower-density areas,” Baxter said. “Also, hotels located on highways that typically accommodate essential travelers and workers witnessed less-extreme drops.”

Despite performance declines, hotel supply growth in Canada remained roughly stable with previous years, Baxter said, as 5,000 new rooms opened across the country.

The more pronounced effects of the pandemic are expected to be felt going forward, with roughly 4,000 rooms expected in 2021 and 2,000 expected in 2022, she said. That severe drop in 2022 is attributed to “a number of projects with delayed opening dates and several proposed projects that have become unviable.”

Hotel transactions volume in the country picked up 19% to CA$865 million ($672.51 million), although those numbers don’t belie any confidence in the hotel sector, Baxter said.

“Much of the volume was made up of repositioning plays as many hotels were sold to be repurposed as residential,” she said. “For example, the largest deal in Vancouver was the acquisition of a portfolio of two hotels, the Howard Johnson Hotel and Buchan Hotel by the Provincial Rental Housing Corporation. The purchase took place in June to provide emergency temporary housing for vulnerable populations in the downtown core during the pandemic.”

COVID-19 is expected to continue to be a dominant factor in Canadian hotel performance.

“The vaccine rollout and new ways of managing should allow for better hotel performance as 2021 progresses,” Baxter said. “Current forecasts point to a drawn-out recovery with operating performance not returning to 2019 levels for several years.”