PKF report: Prairie cities are lodging industry hotbeds

By Mike Deibert
Senior contributing editor

TORONTO—Calgary downtown has surpassed Toronto downtown when it comes to an important number, RevPAR, according to PKF Consulting.

In its latest ranking of national leaders by revenue per available room, Calgary’s core hotels had an average take per room of $125 in 2007 and are forecast to rack up $135 on average this year for an eight per cent hike, according to PKF.

Not only that, but Toronto is in danger of losing the second place spot as RevPAR moves up at a faster pace in Vancouver. The West Coast city’s average for downtown hotels was $119 and the 2008 forecast is for $123, an eight per cent increase.

Toronto’s numbers were $119 in 2007 and a predicted $123 in 2008 for a three per cent increase.

The hottest forecast growth for this year is in Quebec City (16 per cent), Saskatoon (15 per cent) and Edmonton downtown (13 per cent).

Two places are headed for declines on the PKF ranking of 15 national RevPAR leaders, areas with average RevPAR of more than $90: Montreal downtown (-7 per cent) and Victoria (-2 per cent).

The hospitality and tourism consultant firm revealed these numbers in Toronto last month when it presented its 2009 Accommodation Industry Outlook.

PKF assembles its accommodation data from a survey of 1,600 Canadian properties with 200,000 rooms, including 650 hotels. Its economic and travel figures come from the Conference Board of Canada and bank economists.

In leading off the presentation, PKF’s Toronto director David Larone alluded to the unpredictability of the market at present. “Right now, we’re doing our predictions by the hour,” he quipped.

While Canadian fundamentals are good at present, the economic crisis in the United States could bleed over into Canada, he said.

At the same time, he indicated that even in an economy that sees credit tightening globally, there are still potential investors for the accommodation industry. “Equity is still plentiful and looking for a home,” he stated.

John Lantz, president of PKF Hotel Realty Inc., said that up to October this year the number of transactions were down about 60 per cent, yet the average [purchase] price per room has stayed at $110,000.

Fran Hohol, a principal of PKF in Toronto, said that a realistic outlook is for 1.4 per cent annual growth in room supply over the next five to 10 years.

Lantz said that CAP rates will go up and values down in the next couple of years.

Larone ended the session on a fairly positive, if cautious, note.

“The industry is still profitable in this country but we have some very significant regional disparities,” he said. “We’re looking at a moderate track going forward.”

Toronto-based director Brian Stanford said PKF doesn’t believe there will be a dramatic enough drop in profits next year to cause lodging properties trouble. If this happens to any property, that’s because it was already in trouble for other reasons, he said.

He expects to see more interest in development in Western Canada because of continued growth on the bottom line.

Larone stated that Canada had 360,000 rooms at the end of 2008 and had seen a growth rate of 5,000 rooms a year since 2001, with most of the increases in suburban locations.

PKF is forecasting occupancy staying flat this year and next, maintaining the same numbers in 2008 and 2009 that were recorded last year, an average of 68 per cent for full service properties and 60 per cent for limited service ones. In fact, occupancy has been the same for limited service properties since 2005, although the average daily rate has increased each year, going from $85 in 2005 to a projected $100 in 2009.

PKF’s Vancouver office director Beth Walters said Calgary, Edmonton Vancouver and Winnipeg were recording more than five per cent RevPAR growth this year.

She likened Calgary to a teenager with a souped up hot rod and no place to go. While performance is hot in that city, there are a limited number of rooms coupled with a labour shortage.

She said that downtown Edmonton was hot as well. Growth in the city core comes after several years of the suburbs seeing increases in business.

“Saskatchewan is becoming the new Alberta,” she said. This province with a resource-driven economy is experiencing a 4.2 per cent increase in GDP. Saskatoon has seen a rise in corporate business, leading to weekday increases for the lodging industry.

In Winnipeg, she pointed out, the airport is being developed, there’s growth in the aerospace industry and a major new museum of human rights is going to be built.
Resorts in Western Canada are now turning to domestic business to fill the gap left by the drop in American visitors. In Victoria, previously, 56 per cent of tourism market was American, said Walters.

Toronto director Stanford said that PKF had expected growth in Toronto and Montreal this year.

However, low occupancy levels have driving down RevPAR in Montreal, which will see a two per cent decline in occupancy this year.

In Toronto, a growth in room supply is now keeping down occupancy levels. Although in the last five years there has been a seven per cent occupancy growth, room rates have not gone up.

Quebec City has been a pleasant surprise, with 16 per cent RevPAR growth this year, due to the 400th anniversary celebrations.

In the Atlantic region, Moncton has added 500 rooms for a 60 per cent increase. The approval of a new casino in this New Brunswick city will certainly help the market, even though it will be built with its own hotel, observed Stanford.

St. John’s is enjoying five per cent RevPAR growth, and the short to mid-term outlook is positive in Newfoundland/Labrador’s capital, he said.

Beth Walters of PKF’s Vancouver office likened Calgary to a teenager with a souped up hot rod and no place to go. While performance is hot in that city, there are a limited number of rooms coupled with a labour shortage.