Stable Banks Boost Canadian Hotel Development
- Mar 03, 2009
Canada’s highly regulated banking system has fared better than the United States’, as they largely avoided subprime mortgages. Thus lending for hotels in Canada is less constricted than in its neighbor to the south. However, Canada’s economy has slowed, affecting new hotel development to a degree, according to a Lodging Econometrics report. “There is a softening economy, but they don’t have the down-and-out-lending industry that the U.S. has,” said the firm’s president, Patrick Ford. Thus, the Canadian hotel development pipeline is evenly divided between hotels under construction, construction starts scheduled for the next 12 months and hotels in the early planning stages.Ford noted that some European and U.S. developers “saw the snowball coming” and got their projects under construction before lending dried up. Thus, the development pipeline in many countries is weighted toward hotels under construction. In Canada, though, 36 percent of pipeline projects are under construction, and 38 percent are scheduled to start in the next 12 months.Make no mistake that hotel development there is slowing, though. Canada’s hotel construction pipeline peaked during the first quarter of 2008 at 33,694 rooms across 265 projects. The pipeline has diminished every quarter since then to 29,408 rooms across 237 projects by the fourth quarter of 2009. That marks a 13 percent decline in rooms and an 11 percent in projects.The developer sentiment is still relatively positive, however, because Canada’s economy is faring better than many others. Migration of projects up the pipeline has remained strong. Construction starts in the fourth quarter of 2008 increased 14 percent from the previous quarter to 2,153 rooms across 19 projects. Cancellations and postponements are high, at 4,094 rooms across 23 projects, but many of these are larger projects, for which financing has become more difficult to obtain, owing to fears of a softening economy.Select-service hotels dominate the pipeline because of easy access to funding. Branded hotels also predominate, as 84 percent are already being branded and 70 percent of the remaining projects are likely to choose a flag before opening. Lenders today are much more comfortable financing branded hotels, Ford said. “With a brand, the operator gains instant market awareness and a reservation system. The case for carrying a brand today has become more and more overwhelming.