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CUSHMAN & WAKEFIELD | VALUATION & ADVISORY

HOTEL CAP RATES ACROSS CANADIAN MARKETS

VICTORIA VANCOUVER CALGARY EDMONTON WINNIPEGRANGE RANGE RANGE RANGE RANGE

Full-Service Downtown 6.25% 7.50% 5.00% 6.50% 7.00% 8.50% 7.50% 9.00% 8.00% 9.50%

Select-Service 7.25% 8.50% 6.00% 8.00% 7.50% 9.50% 8.00% 9.50% 8.00% 9.50%

Limited-Service Suburban 7.50% 9.00% 6.50% 8.50% 8.00% 10.00% 9.00% 10.50% 8.50% 10.00%

KITCHENER/WATERLOO TORONTO OTTAWA MONTREAL HALIFAX

RANGE RANGE RANGE RANGE RANGE

Full-Service Downtown 7.50% 9.50% 5.00% 6.50% 7.00% 8.50% 7.00% 8.50% 7.50% 9.00%

Select-Service 7.50% 9.50% 6.25% 7.50% 7.50% 9.00% 7.50% 9.00% 8.00% 10.00%

Limited-Service Suburban 8.00% 10.00% 6.75% 8.00% 8.00% 10.00% 8.00% 10.00% 9.00% 10.50%

CANADA HOTEL PERFORMANCE UPDATE

Many were hoping for the recovery to start with the

onset of the vaccine rollout in 2021. However, as the

country was impacted by a third wave of COVID-19 in

early 2021, and as vaccination rates took time to ramp up,

hotel performance continued to suffer. While demand was

soft in Q1, Q2 has begun to show stronger growth.

The following chart shows rolling national RevPAR

performance indexed to the previous year, as well as the

4-week moving RevPAR average.

As can be seen, results have begun to increase significantly since May with continued growth expected.

INNSIGHTGLOBAL HOSPITALITY CANADA

Quarterly Q2 2021

Hotel Performance Update

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CUSHMAN & WAKEFIELD | VALUATION & ADVISORY

VACCINATIONS, BORDER REOPENINGS, POINT TO A STRONGER H2

Recent results show a noticeable increase in accommodation performance throughout June and the

first three weeks of July. Across Canada, vaccination rates have increased dramatically in recent weeks, resulting in a loosening of restrictions and the planned re-opening of the Canada-U.S. border. In addition, the peak leisure travel season is in full swing, and hoteliers are seeing signficant pent up demand from small groups and weddings.

For the week ending July 17th, occupancy is strongest in B.C. markets with Thompson/Okanagan posting an occupancy of 84.6%, followed by Ontario North/Thunder Bay (77.7%), Abbotsford/Chilliwack (76.1%), and Vancouver Airport (71.6%). Ontario NorthCentral/Sudbury recorded occupancy of 67.7% this week followed by Quebec South/East, Vancouver South/Surrey, and Quebec North, which all recorded occupancy above 60%. Many of these locations are popular destinations for summer tourism and have a base of essential corporate/crew business related to construction, forestry, mining, etc.

Canada’s major cities, which saw the most significant declines during the pandemic, have begun to show signs of recovery, with Calgary recording occupancy of 56.6% for the week ending July 17th, during which it hosted the Calgary Stampede. The event saw attendance levels of

about 40% of total 2019 attendance. This was followed by Vancouver (56.5%), Ottawa (45.0%), Edmonton (44.0%), Toronto (39.1%), and Montreal (38.3%).

ADR has also begun to recover across the country, resulting in a number of markets recording RevPAR growth of over 200% for this week in comparison to the same week last year. Markets recording over 200% RevPAR growth include Montreal Airport and Calgary Centre, while markets recording RevPAR growth between 100% and 200% include Downtown Vancouver, Montreal Downtown, Calgary Airport, Toronto Airport/West, Victoria, Downtown Toronto, and Abbotsford/Chilliwack.

OUTLOOK

Recent performance signals the beginnings of a recovery in the Canadian accommodation market, and there is much optimism for the rest of the year. Many hoteliers are reporting significant levels of pent up demand for accommodations during peak periods and for events such as training, social groups, weddings, etc. Many expect corporate travel to begin to return in a meaningful way in September as the summer vacation period wraps up. The second half of 2021 is expected to see continued improvements in occupancy and ADR and to mark the beginning of a strong recovery in the Canadian accommodation sector.

Source: STR | Standard Methodology | Republication or other re-use of this data without the express written permission of STR is strictly prohibited.

March 2020 through February 2021 results are indexed with the same time period in prior respective years. March through YTD July 2021 results are indexed with the same time period in 2019.

CANADA MARKET RECOVERY MONITOR- Weekly RevPAR IndexSince the earliest COVID-19 impact

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CUSHMAN & WAKEFIELD | VALUATION & ADVISORY

The US had one of the world’s earliest mass vaccination campaigns against COVID-19. In mid-July, the CDC reported 49% of the population as fully vaccinated (57% with at least one dose).

US vaccination progress has correlated with steady growth in airport passenger volumes and hotel occupancy levels. In June, airport passenger traffic reached 2 million a day – a threshold last achieved in March 2020. The threshold is now being surpassed consistently on Sunday, Monday, Thursday and Friday.

For June, STR reported US hotel occupancy of 66%, which was 10% below the June 2019 occupancy.

While demand has been mostly transient leisure, there is increased group demand for social gatherings and hybrid events, the latter defined as events combining in-person and online attendance. A rebound in corporate transient and group business is expected following the summer season.

In comparison, Canada had a slower initial vaccination rollout. In mid-July, the Government of Canada reported 50% of the population as fully vaccinated (70% with at least one dose) – surpassing US levels.

Prior to June, vaccination progress in Canada did not coincide with more airport passenger traffic or higher hotel occupancy levels. This can in part be explained by new waves of virus cases and extended public health restrictions.

STR reported Canadian hotel occupancy of 37% in June – or about half of the occupancy achieved in June 2019. Demand continues to be mostly transient leisure. Corporate and group business is anticipated to restart late after summer.

The Canadian border will be open to fully vaccinated US travelers on August 9th and all other international travelers on September 7th. Barring a major setback to virus containment or travel restrictions, 2022 will be pivotal to the recovery of the Canadian hotel market, and we expect strong growth in corporate and group business across the country.

Vaccinations Drive Recovery

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Source: CATSA, Government of Canada, STR. Compiled by Cushman & Wakefield ULC.

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Source: TSA, CDC, STR. Compiled by Cushman & Wakefield ULC.

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CUSHMAN & WAKEFIELD | VALUATION & ADVISORY

MACRO VIEW

Building permit activity is often

viewed as a lead economic

indicator as to the general health of the

construction industry and the broader

Canadian economy. During Q2, the

number of building permits issued

across Canada grew significantly,

following the typical cyclical trend for construction activity

in the first half of the year.

From January to May the number of building permits

issued across all sectors increased from 24,015 to 52,689,

an increase of nearly 120%, surpassing the number of

building permits issued for the same period last year.

Although, early indications are that numbers may not

eclipse previous highs of 58,359, 57,255, and 56,261 for

2018, 2019, and 2020, respectively, and possibly indicating

a continuing trend to the downside.

Perhaps not surprisingly, the residential sector

(single-family and multiple dwellings) leads sector growth

in the number of building permits issued, contributing

between 83% to 89% of the total number awarded,

followed by the Commercial sector ranging between 7-11%

month to month. The smaller industrial and institutional

sectors make up the balance.

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Despite the positive uptrend for the first half of 2021, this does not show the complete picture. Interestingly, the dollar value of building permits reduced by 14.8% nationally for May, and notably dropping by 26.6% in

Ontario and 30.9% in New Brunswick. Perhaps it is too early to confirm if this downturn is part of a post-COVID correction, seasonal adjustment, or part of a wider economic trend.

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Figure 1. Building Permit Numbers Canada. Source - Statistics Canada

Construction EconomicsBy Daniel Holland, MRICSPARTNER, RTAQS

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CUSHMAN & WAKEFIELD | VALUATION & ADVISORY

COMMODITIES

Understanding and assessing the market drivers in the

commodities world plays an important part in the

capital planning and procurement of construction projects.

The recent pandemic and force majeure events have

created uncertainty in the construction industry, adding

further commercial risk for owners seeking a positive yield

in competitive markets. Commercial risk is inherent on any

construction project, however, it can be mitigated through

a pro-active approach to cost planning during design,

combined with an appropriate procurement strategy

suited to the complexities of the project which are aligned

with the owner’s expectations.

Key commodities contributing to rising construction costs include lumber, copper, steel, aluminum, and bitumen.

• Lumber (wood framing) – Down 17% YTD (down 44% in May). Strong demand anticipated in Q3. Supply issues remain a concern moving forward. Upward price action to follow a period of price consolidation.

• Copper (piping, electrical product) – Up 20% YTD. Continued strong demand across all sectors and upward price trend to continue through Q3 and Q4.

• Steel (fabricated products, structural steel, reinforcement) – Up 16% YTD. Continued strong demand globally. A China slowdown and changing sentiment towards low carbon emissions may impact global supply and price for the second half of 2021.

• Aluminium (sheet metal, electrical product) – Up 27% YTD. A continued upward trend in material price is forecast. 60% of production comes from China. Risks from evolving trade politics are an ongoing concern.

• Bitumen (road surfaces, waterproofing products) – Up 30% YTD. Strong continued demand for 2021. Supply is sensitive to seasonal oil price trends and changing geopolitics. Price action forecast to continue upward.

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Construction EconomicsBy Daniel Holland, MRICSPARTNER, RTAQS

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SOURCE:TRADINGECONOMICS.COM

Lumber

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FOCUS ON LUMBER

Lumber prices surged dramatically in the first half of the year as North American supply struggled to meet

burgeoning demand in buoyant construction markets, notably the single-family and multiple dwellings sectors.

From January through to April/May softwood lumber prices increased by 69% before experiencing a major correction which saw prices plummet 44% over the space of a month, dipping below Q4 2020 price levels.

Although this sharp downturn in lumber prices has been welcomed by most, with many supply orders and contracts already placed well in advance (based on predetermined prices), it may take time before this price adjustment is reflected in lower overall construction costs.

Looking ahead, demand for lumber (and engineered wood) for both traditional wood frame and mass timber construction is projected to grow significantly in North America, reflecting a broader trend away from carbon-intensive construction materials and systems such as steel, which is used extensively in structural steel and concrete frame structures.

However, meeting the growing demand for wood products will be a challenge for the industry. Existing domestic

sawmills are already operating at close to capacity, and planned investment to expand facilities is a lengthy process that may not be sufficient to address further supply shortages caused by external market factors. Furthermore, in recent years natural disasters such as forest fires and pine beetle damage, have contributed to a limited supply of wood fibre in Canada’s primary lumber-producing region British Columbia.

Supply issues aside, with strong market tailwinds in play, combined with advances in wood-frame design and engineering, the use of lumber and engineered wood in construction will continue to provide strong competition to steel and concrete alternatives.

Cushman & Wakefield ULC 161 Bay Street, Suite 1500 Toronto, Ontario M5J 2S1

©2021 Cushman & Wakefield. All rights reserved. The information contained within this report is gathered from multiple sources believed to be reliable. The information may contain errors or omissions and is presented without any warranty or representations as to its accuracy. *Sales Representative

CAPITAL MARKETSCURTIS GALLAGHER* Head of Hospitality | Principal Broker Structured Finance FSRA Lic. 13239 +1 416 359 2567 curtis.gallagher@cushwake.com

VALUATION & ADVISORYBRIAN FLOOD, AACI P.App., MRICS Vice President, Practice Leader +1 416 359-2387 brian.flood@cushwake.com

CINDY SCHOENAUER, AACI P.App., RI Vice President +1 604 340 9141 cindy.schoenauer@cushwake.com

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Figure 2. Lumber Prices 2020-2021. Source - Trading Economics

RTAQS is a quantity surveying firm specialising in providing cost consulting services in the public and private sectors.Daniel is a Chartered Quantity Surveyor with over 20 years of cost consulting experience in the construction industry.

Construction EconomicsBy Daniel Holland, MRICSPARTNER, RTAQS