Canadian Lodging Market Poised to Set New RevPAR Records in 2014 and 2015
Canadian Lodging Outlook - 1st Quarter, 2014
At last, the Canadian lodging market returned to pre-debt-crisis performance levels in 2013, enabling new records to be set for RevPAR in 2014 and especially in 2015 (unadjusted for inflation). These new highs will be a continuation of the strong growth sustained in 2013, when the Canadian market realized a RevPAR increase of 3.9%, buoyed by the high RevPAR growth in oil and gas markets across Canada.
The record levels for RevPAR that are projected for 2014 and 2015 are based on the improving economic conditions in both Canada and the US, the weaker Canadian dollar, and the increase in tourism from emerging economies. For Canada, RBC is forecasting GDP growth of 2.5% and 2.7% in 2014 and 2015, respectively (up from 2.0% in 2013). Moreover, the Conference Board of Canada projects overnight tourism visits across the country to increase 2.2% and 2.7% in those respective years, which is stronger than the 1.4% growth rate sustained in 2013. These are all positive indicators for lodging demand growth in Canada.
Importantly, the gap in economic performance between Western and Eastern Canada is expected to narrow in 2014. Ontario, Quebec, and Nova Scotia are projected to make greater contributions to national economic growth than in 2013, whereas Saskatchewan in particular and Manitoba to a lesser degree are projected to see more moderate growth in 2014 and 2015. The stronger economic performance in Eastern Canada bodes well for the Canadian hotel industry as a whole.
With the general improvement in economic conditions, the room supply will start to increase at a stronger rate. The national room supply is projected to grow 0.8 % in 2014 and 1.7% in 2015, which is a marked increase relative to the 0.5% growth in supply that the country experienced in 2013, albeit still below the historical national average of 2.3%.
Demand growth is nevertheless expected to continue to outpace supply growth. The national occupancy is forecast at 64.6% in 2014, up from 63.3% in 2013, and it is projected to reach 65.1% in 2015. On the average rate side, Canada had not seen average daily rate (ADR) growth above inflationary levels since 2008, but 2013 was the turnaround year with 2.3% growth, and even stronger increases are on the horizon. Year-to-date through March 2014, the national RevPAR was 4.6% higher than in the comparable period in 2013, which is a clear sign that the market is moving into uncharted RevPAR territory. Although the national perspective is overwhelmingly positive, the performance of individual markets will vary according to local and regional market forces. The recent performance and the outlook for five major markets across Canada—Downtown Vancouver, Calgary, Downtown Toronto, Downtown Montreal, and Halifax—are showcased in attached PDF.
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