q2 2011 inn vestment canada

8/6/2019 Q2 2011 Inn Vestment Canada

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INNvestment CANADAcolliers international hotels

Since publishing the Q Canadian Hotel Investment Sentiment Survey in

partnership with Ryerson University’s Ted Rogers School o Hospitality and

Tourism Management, Colliers International Hotels undertook a secondresearch paper with the University, this time conducting a Supply and

Demand Analysis o the Upper Tier hotel market in downtown Toronto.

The primary objective o the study was to analyze the impact o the new and

uture luxury hotel openings in Toronto, assessing the key drivers o demand,

and the market’s ability to absorb these new properties. Several brand

representatives were interviewed, all o whom agree Toronto’s hotel market

is undergoing a major transormation which promises to raise the bar in

luxury or the nation’s largest city and nancial capital. The challenge will lie

in attracting and charging the sort o room rates that justiy the capital

investments in these projects. However, as each new property comes on-

stream, it will deliver a unique experience where travellers are willing to pay

top prices or the best locations and services/amenities now comparable on

an international scale.

A Look into Toronto’s Newound Luxury Hotel MarketImplication of the increase to the City’s existing upper-tier room base and impact for the rest of the market.

Q2 2011 | HOTELS

..

Also Inside > Million in Hotel Transaction Volume Occurred in the First Hal More on Page

A summary o key ndings include:

> One-in-ve hotel rooms downtown will be Upper Tier by , ne

doubling the City’s existing stock o premier hotel room inventory. A

actoring the closure o the existing Four Seasons, which will be replacthe net amount o rooms to be absorbed is . Factoring in

additional proposals would bring an additional rooms.

> New supply o Upper Tier rooms will peak in , growing .

ollowed by .% in .

> The popularity o the mixed-use residential hotel concept, coupled w

Toronto’s buoyant residential market and shortage o luxury hotels

been the catalyst driving new hotel development in the City.

> Toronto has historically lacked luxury hotel inventory. Rec

inrastructure and tourism investments will help the City market its

more as an international destination, driving demand or the new hoerings.

> The City’s overall lodging market will benet rom the new high-

hotels, which should push the overall average rate upward. This

contingent on the Upper Tier hotels educating the market, increasing

rate ceiling and preserving rate integrity.

Source: Colliers International Hotels and Ryerson University

Renderings left to right: Shangri-La, Thompson Toronto, Hotel Le Germain at Maple Leaf Squ

ProPerty rooms oPen Date

recently oPeneD

Hôtel Le Germain at Maple Lea Square 167 Q4 2010

Thompson Toronto 102 Q2 2010

The Ritz-Carlton Toronto 267 Q1 2011

unDer construction

Trump International Hotel & Tower Toronto 261 Q4 2011

Shangri-La Hotel Toronto 202 Q3 2012

Four Seasons Hotel Toronto 253 Q3 2012

closures

Four Seasons Hotel Toronto (Avenue Road/Bloor ) -380 Q1 2012

Total New Additions Less Closures 872

Rumoured Future Additions

Bisha Hotel 100 n/a

Gansevoort Toronto 100 n/a

Downtown toronto - new anD ProPoseD uPPer-tier hotel suPPly


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Innvestmet Canada | Q2 2011 | COLLIERS INTERNATIONAL HOTELS

backDroP

At the beginning o there were only seven hotels comprising just %

o the overall room inventory (or a total o , rooms) in the Upper Tier

hotel segment. Since then we have seen three high-end properties open

(Ritz-Carlton, Le Germain at Maple Lea Square and Thompson), with

three additional hotels under construction (Trump, Shangri-La and a new

Four Seasons) as well as a urther two rumoured (the independentlybranded Bisha and New York-based Gansevoort). By , together with

the existing inventory, and actoring one closure, the Upper Tier segment

will comprise approximately , rooms, representing % o the overall

downtown Toronto inventory o about , rooms.

It is important to explore the market nuances at play when analyzing the

jump in supply targeting the high-end traveler. Since the s, the

development o luxury hotels throughout North America has predominantly

resulted rom the mixed-use concept. This model o development involves

a portion o any given structure dedicated to one or more uses, oten

including residential, oce or retail components. The sale o the residences

provides a substantial amount o capital to help secure nancing orconstruction, but also provides a subsidy to the higher-risk hotel component

permitting the developer to reduce capital costs associated with the

hotel.

The demand or residential condominiums has exploded over the past two

decades in the City o Toronto, the result o demographic and societal

drivers. In act, at the end o , Toronto had the most skyscrapers in

the sky than any other city other than Tokyo, uelled by the City’s red-hot

condominium market. The mixed-use model provides the opportunity or

signicant lit on the average selling price o the condo units when they

are associated with respected hotel brands. On the high end o the market,

in May the Four Seasons sold a , square oot condo or million or , per square oot, the highest price ever sold in Canadian

history at their new hotel development under construction. While this

suite sold % above the average selling price o the overall new

construction condo market in the Bloor-Yorkville neighbourhood, it is not

uncommon or residential portions commanding a premium o at least %

to % versus buildings o similar construction and location.

Each o the new luxury developments are a part o the mixed-used concept

and range in size rom to hotel rooms combined with condominum

units and extensive acilities and services.

uPPer-tier suPPly anD DemanD

As part o the Study, we completed a historical and projected Supply and

Demand Analysis or the Upper Tier market rom to . For the

decade ending , there was relative equilibrium in supply and demand

or the existing Upper Tier competitive market, with supply growing on a

compound annual basis by approximately .%, met with demand that

grew .%. New supply during this time was limited to the addition o the

-room SoHo Metropolitan and -room Hôtel Le Germain, both o

which opened in the City’s entertainment district in , and the -room

The Hazelton Hotel opening in .

Given the new inux o hotels, the

Upper Tier competitive room night

supply is expected to increase by %

over the next ve years, mainly

impacting the market in at .%.

The impact o the new openings in

/ will be sotened given the

closing o the existing -room Four

Seasons that is anticipated to be

removed rom inventory in Q ,

with a net percentage increase or the

competitive market o only .%.

While it will no doubt take some time

or the market to absorb the new

rooms, the transormation to the City’s

luxury landscape is long overdue and

comes at a pivotal time given the current state o the economy and promis

local undamentals. It is also important to note that there is also the possib

o additional hotels in the market being redeveloped to residential uses othe next ew years as a result o market orces including the resili

condominium market as well as older hotel stock struggling to compete w

the newer product.

Moving to the other side o the equation, demand is orecast to rise

.% or the Upper Tier market in , ollowed by .% in

supported in part by the ollowing:

> Toronto’s GDP grew at the astest rate national ly in at .%, ai

by the construction sector and strong retail growth trends and is orec

to outperorm the national average through according to

Conerence Board o Canada.

> Unlike many major cities in North America, Toronto is experiencin

rising employment market, which is supporting over three million squ

eet o new AAA oce space recently constructed downtown in a A

market that currently has a vacancy rate o .%, according to statis

compiled by Colliers International.

> The City’s appeal has been inuenced by major investments in tour

inrastructure. This includes the . billion, ten-year redevelopmen

the Toronto Pearson International Airport, opening o the Four Seas

Centre or the Perorming Arts, new headquarters or the world’s larg

lm estival known as the TIFF Bell Lightbox and an extensive waterr

renewal, among other initiatives that elevate the City’s appeal oninternational scale.

> The City also holds promise rom the additional build-out o tour

inrastructure that will occur as it gears up to host the Pan Ameri

Games that is planned to bring , athletes and , tourists.

> A steady up-trending in population growth that is supported by posi

immigration, and growth in the number o overnight visitors and resul

tourism expenditures.

Property Renderin


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> Toronto’s signicant inrastructure investments in Research &

Development (“R&D”) in the City’s world class research hospitals has

been dramatic in recent years and now ranks the City as one o the

world’s top lie science centres.

> Additional demand will be induced given the signicantly better luxury

oering, ueled by the internationally recognized brands with global

reaching reservation systems and marketing teams.

branD PersPective

To tie the analysis together, we asked a cross section o brands representing

the new Upper Tier hotel market or their views on the entrance o their

new properties and how they anticipate competing or business. Below is

a summary o their overall thoughts on the City, their general marketing

strategies and perspective on the long-term implications to Toronto.

w t d?

> Toronto is a logical market or international ags since it is the nancial

capital o the country and th largest city in North America.

> There was an obvious void in the luxury market with the existing

competitors not viewed as true luxury given their lack o quality

product oering.

> For some brands like Shangri-La and Trump, Toronto oered a logical

expansion as the companies continue to grow internationally.

w d ?

> A signicant component o room demand will come rom the brand

names that will attract more afuent business and leisure travelers.

The new properties oer previous visitors as well as rst-time visitors

more o an incentive to come to Toronto, and some brands estimated

upwards o % to % o reservations will be a result o the brandaliation, keeping in trend with their other properties.

> The biggest challenge will be rate integrity and not engaging in price

discounting. Nearly all brands acknowledged that educating the market

will be a pivotal task as the new inventory opens.

> It should take between three and ve years rom opening or the hotels

to ramp up operations and stabilize at projected rate and occupancies.

Q: w - pp ?

> A large base o in-place corporate travel to the City with a strong

demand or top-end hospitality already exists. This traditionally

under-served segment bodes well or the new market entrants.> All are condent in the market and cite Toronto’s growing appeal,

which will oer true luxury product, particularly as it relates to growing

its share o large delegations and conventions that previously turned

down the City given the lack o upscale accommodations.

> Events like the Pan Am Games in Toronto, which will be the

largest multi-sport event held in Canada since the Olympic

Summer Games, and the increasing globalization o travel, supported

by the recent Approved Destination Status rom China, provides majo

catalysts or continued demand growth or overnight accommodation

challenges anD oPPortunities or the market

The new stock o hotels will oer the acilities to accommodate wo

class travelers, including spas, multiple specialty restaurants and the lat

in guest room technology. The question will be whether this segment

be able to attract enough guests that are willing to ‘pay up’. The majo

o the new luxury brands have projected average rate and occupa

stabilizing at - and %, respectively. Given the estima

, net new rooms opening through , there will likely be push

pull between the old and new properties, and this has already b

exhibited by many o the existing ull-service hotels renovating over

past ew years in anticipation or the heightened competition.

The potential threat is that discounting will occur in order to build mar

share. This o course would be at the expense o the entire market, wrate discounting having a severe lasting impact. In Toronto or instan

rate discounting throughout the years has resulted in average daily ra

% below where they were in pre-SARS at the end o .

However, to put it in perspective, Toronto’s average rate or the ove

market was in , which has historically lagged other gatew

North American cities. For instance, Boston and Washington (DC) repor

ADRs o US and US respectively in , with the top perorm

market, New York, ending at US according to Smith Travel Resea

The new luxury product will allow Toronto to compete more on

international scale and command higher rates that are justied w

compared to similar-branded hotels across North America.

Another important consideration is that even though these new hotels

categorized in the top o the market, each competitor is not going ater

same customer. For example, the Thompson caters to style-consci

travelers, while the Shangri-La brand has a large ollowing w

predominantly overseas business and leisure guests. Overall, the lo

term impact will be positive and the investment in new luxury supply

also push up the entire market’s ability to charge higher rates. As individ

large-scale PR campaigns roll-out or the each new project, it cannot

overstated that these new hotels will allow the City to reposition its

attract additional business demand, conerences and conventions that m

have overlooked Toronto in the past.

En

A special thank you to Proessor Richard Wade and ourth year students Vadess Johan, Soyoung Ko,

Kailee Lewis and Laura Liggett o the Ted Rogers School o Hospitality and Tourism Management at

Ryerson University.




w f :

Amsterdam

Auckland

Costa RicaHong Kong

London

Mexico CityMiami

MoscowOslo

San Francisco

SingaporeShanghai

Sydney

TokyoWarsaw

Accelerating success

colliers international hotels

CANADA

t

One Queen Street East, nd Floor

Toronto, ON MC Z

alam Pirani

+

[email protected]

robin mluskie

+ [email protected]

russell beauDry

+

[email protected]

amy kwan+

[email protected]

v

Granville Street, th FloorVancouver, BC VC R

tom anDrews

+

[email protected]

hamir bansal

+ [email protected]

..

INTERNATIONAL

colliers international

oces in

countries on continents..

../P. 5 | ..

year to Date canaDian hotel traDes

Le Manoir d'Youville Châteauguay, QC 117 Apr $5,050,000 $43,200 n/a

Niagara Family Inn & Restaurant∆ Niagara Falls, ON 36 Apr $1,835,000 $51,000 n/a

Kamloops Travelodge Mountview Kamloops, BC 60 Apr $5,000,000 $83,300 n/a

Anchorage Motel8 Niagara-on-the-Lake, ON 22 May $4,507,000 $204,400 n/a

Athabasca Lodge Motel Athabasca, AB 32 May $1,860,000 $58,100 n/a

Benmiller Inn & Spa∆ Goderich, ON 57 May $1,550,000 $27,200 1.4

Delta Toronto East Toronto, ON 371 May $21,275,000 $57,300 n/a

Navigator Inn9 Iqaluit, NU 45 May n/a n/a n/a

Nova Inn Iqaluit10 Iqaluit, NU 75 May n/a n/a n/a

Parkview Motel Guelph, ON 36 May $2,200,000 $61,100 n/a

Traveller’s Inn Downtown∆ Victoria, BC 81 May $6,325,000 $78,100 n/a

Best Western Tumbler Ridge∆ Tumbler Ridge, BC 102 Jun $7,015,000 $68,800 n/a

Comort Inn Vancouver Airport Richmond, BC 129 Jun $8,533,000 $66,200 7.2

Courtyard by Marriott & Residence InnMontreal Airport

Montreal, QC 329 Jun $39,000,000 $118,500 8.2

Delta Vancouver Airport 11 Richmond, BC 414 Jun $55,000,000 $132,900 4.5

Hill Island Resort Lansdowne, ON 51 Jun $1,199,000 $23,500 n/a

Radisson Suite Hotel Haliax Haliax, NS 104 Jun $12,324,000 $118,500 6.2

Shamrock Motel Midland, ON 24 Jun $1,210,000 $50,400 n/a

Stock Exchange Hotel12 Winnipeg, MB 14 Jun $2,200,000 n/a n/a

Sunset Inn13 North Bay, ON 26 Jun $1,377,000 $53,000 n/a

The Sutton Place Hotel Edmonton14 Edmonton, AB 313 Jun $33,875,000 $108,200 4.7

The Sutton Place Hotel Vancouver15 Vancouver, BC 561 Jun $163,625,000 $291,700 5.6

Source: Colliers International Hotels

Footnotes:1 Includes excess land or uture development.2 Share sale. Pricing not available.3 Situated on 800 acres and includes signicant development potential. Price per room not applicable.4 Includes a tavern, lounge and video lottery operations.5 The purchaser plans to convert the property to a retirement residence.6 50% interest transerred. The Hotel has 81 rooms.7 The property closed operations in April 2010 and includes approximately 70 acres o land.8 Includes two houses and a 10,000 SF vacant restaurant.9 Purchased to eventually redevelop the site into alternate uses. Part o a larger property transaction valued at $71 million, which included other commercial and

residential uses. Individual purchase price is not available.10 Part o a larger property transaction valued at $71 million, which included other commercial and residential uses. Individual purchase price is not available.11 Share sale.12 Includes signicant retail, VLT and beverage income.13 Includes a house.14 Part o a two property portolio.15 Part o a two property portolio. Includes 397 guest rooms and 164 strata units branded as La Grande Residences.

∆ Distressed sale sold under power o sale or receivership.

Colliers International Hotels is pleased to announce that Hamir Bansal has joined our

team as Sales Associate. Based in Vancouver, Hamir will work closely with Tom

Andrews and the rest o the Canadian hotel team based in Toronto, providing investorcoverage and pursuing hotel mandates in Western Canada. Hamir joins us rom

MacDonald Realty in Vancouver, where over the past our years he has gained

considerable experience selling hotel properties in British Columbia and Alberta.

Hamir has a Bachelor’s degree in Hotel Management rom Mangalore University and

has completed the Hotel Real Estate Investment and Asset Management certication

rom Cornell University as well as appraisal courses at UBC’s Sauder School oBusiness.

h b Joins Colliers’ Canadian Hotel Team

q2 2011 inn vestment canada

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