Hotel Investment Sees Dropoff in Canada
- Mar 26, 2009
Even though Canada’s economy is faring better than many others, the global credit crunch and recession have hampered the country’s hotel sector. According to a new report by Colliers International, the Canadian hospitality market experienced a 77 percent decline in investment activity over the past year, falling to $1.1 billion. But despite the downturn in activity, the report expressed optimism for the future. “Although the current climate looks bleak, the lodging industry is in a much better position compared to previous downturns, as it hasn’t been inundated with oversupply and distressed hotels,” noted Bill Stone, executive managing director with Colliers International Hotels. “The past has taught us that the hotel industry can come back stronger after each downturn. In fact, this economic slowdown presents an opportunity both for investors and owners to reassess their investment and operations strategies respectively, to successfully weather this down cycle and better position themselves when the market turns around.”Earlier this month CPN cited a Lodging Econometrics report that Canada’s economy has slowed and as a result has affected new hotel development to a degree. At the same time, Canada’s banking system has fared better than the United States’, as banks there largely avoided subprime mortgages. Thus lending for hotels in Canada is less constricted than in its neighbor to the south. “There is a softening economy, but they don’t have the down-and-out-lending industry that the U.S. has,” Patrick Ford, the firm’s president, told CPN.Alam Pirani, executive managing director with Colliers International, said that while a significant slowdown has affected the hospitality industry in the country, it will not be as substantial as in the U.S., given the market’s strong fundamentals. He predicted that Canada will remain relatively insulated from the global credit freeze, because it has historically been a low leverage investment environment. Additionally, according to Colliers Hotel Value Index, which measures hotel values based on various market indicators, the difficult economic conditions also took a toll on the overall hotel value, which fell in 2008 after three consecutive years of double-digit growth. The average hotel value dropped by 1.4 percent nationwide, with an additional decline of 6.3 percent expected in 2009.