COVID-19 hit the Canadian hotel sector hard and fast in the late days of the first quarter. CBRE Hotels Canada now forecasts a 50 per cent decline in average revenue per available room (RevPAR) this year — a significant downward adjustment from the modest 2.7 per cent year-over-year growth envisioned as 2020 began. Although plummeting occupancy appears to have bottomed out and crept back up marginally, Canadian hotels, on average, were less than 20 per cent full as May began.
That picture translates to average RevPAR consistently below $20 for seven weeks following the World Health Organization’s declaration of the pandemic and ensuing social distancing orders, business shutdowns and border closures. CBRE’s recently released first quarter overview tallies a 28 per cent drop in occupancy, a 5 per cent decline in the average daily rate (ADR) and a 49 per cent slump in RevPAR over the course of roughly two-and-a-half weeks.
“The performance in March reduced the first quarter occupancy by 10 points, with ADR generally unchanged, at -1 per cent, but RevPAR declining by 18 per cent,” the report states. “Even with an easing of restrictions, the balance of 2020 will still be a long way off 2019 levels.”
Indeed, CBRE analysts predict that gap won’t close until later in 2022. For now, they speculate Canadian hotel operators are getting up from the initial knockdown and readying for 12 to 18 months in survival mode.
“Recovery will necessitate innovation to address social distancing protocols, enhanced sanitation measures and revised operating procedures,” they advise. “We should anticipate the recovery period will be protracted before we get to a new normal and we still don’t know what that will entail.”
It is expected limited-service hotels will rebound more quickly than the full-service and resort facilities that are more reliant on business travel, conference facilities and vacation/tourism traffic. Thus far in the second quarter, investment deals have been limited to those that were in the works prior to the pandemic.
COVID-19’s impact on asset value and financial stability is expected to vary across regions and property types, and with owners’ relationships with their lenders. Analysts suggest operators with a portfolio of assets in major centres are likely to be more favourably placed than those with single holdings, particularly if they are located in “energy reliant markets and smaller communities”. That dynamic could emerge more clearly over the next couple of months as stressed owners seek “a liquidity event, through a sale, equity injection or debt refinancing.”
“Given the quantum of private and private equity capital sitting on the sidelines, we anticipate there will be high demand of capital to acquire hotels across the country,” CBRE analysts conclude.
