Foreign Investment Powering Canada's Hotel Sales Market
Foreign investors continued to propel the Canadian hotel sales market as Q2 sales volume tripled from a year ago.
According to Colliers International Hotels' recently released Q2 INNvestment Canada report, sales activity was strong in the second quarter with a year-to-date transaction volume of $2.14B. Asian capital remained prominent in the market with foreign buyers investing more than $1.2B in Canadian lodging real estate.
“Canada is viewed as a very attractive market right now," Colliers Senior Hotel Analyst Fraser Macdonald said. “We’ve become well-known for our banking system and our political stability. The weaker dollar has also helped. It’s seen as a safe investment.”
Eastern Canada led the country with approximately $735M in traditional sales volume, 55% above the same period in 2016. Ontario made up 74% of this volume, with several significant transactions in Toronto, Ottawa and London.
Strategic transactions continued to drive material growth in the market, namely the $1.1B sale of the bcIMC/SilverBirch portfolio (25 properties and 6,757 rooms) and the sale of the former Trump International Hotel & Tower in Toronto, now dubbed The Adelaide Hotel. Together, these two transactions accounted for nearly 60% of year-to-date sales volume.
Even when excluding these strategic deals, the report found the traditional market was 25% ahead of last year with sales of $893M.
“We’re a smaller market so one big investment can really throw things off,” Macdonald said. “If a hotel sells, it has a big impact on the market.”
The strong 2017 showing follows a tremendous 2016, when hotel transaction volumes reached $4.1B, the second-highest number on record. Macdonald was not sure 2017 would see that high of a number, but he expected the market to remain active.
“There won’t likely be anything in the billion-dollar range. But definitely there are deals in the pipeline,” he said.
All these hotel transactions do not necessarily translate to more tourists and business people visiting cities like Toronto. But Toronto does remain the country’s biggest tourist destination.
The GTA attracted a record 14 million overnight visitors and 26 million day visitors in 2015, according to Tourism Toronto. There was more growth in 2016, with U.S visitors by air up 15% while Americans coming by car rose 7% in the first half.
“The word is out. Toronto is hot. Toronto is the place to visit,” Greater Toronto Hotel Association President and CEO Terry Mundell said. “Toronto is a top international destination. People come back. But you have to get them to come here in the first place.”
If there is one worry for the Toronto hotel industry it is the rise of home-sharing operations. In another recent report, Colliers found Airbnb alone represented 2% to 5% of the market share in major Canadian cities in 2015, a number that has continued to grow.
Regulation for this new industry has been slow to catch up. Toronto City Council is in discussions for new regulations that will bring a licensing and registration system for Airbnb-style rentals.
“It will bring a lot more control over the industry. That’s what it lacks now,” Mundell said. “The trick is not making the registration too complex. Then people don’t bother to register.”
