The Summer of 2021
2021 was a roller coaster year with on-again off-again lock downs, borders opening, and everyone brushing up on their Greek alphabet due to new COVID-19 variants. Despite the bumpy ride, hotel markets across the country finished 2021 above expectations, but still far below 2019 levels. Nationally, RevPAR grew 47% over 2020 as pent-up demand kept leisure destinations bustling over the warmer months. Rates did not experience the same rebound with only 5.5% growth, for a RevPAR of $57.
2022: Year of the Rebound
Looking forward, CBRE projects RevPAR will grow by 43% to reach $81 in 2022 –76% of 2019 levels. The RevPAR recovery in the first quarter is expected to be relatively soft (40% to 60% of 2019 levels) due largely to impacts from the Omicron variant. Over the balance of the year RevPAR is expected to improve as more diversified segmentation returns to markets and traveler confidence increases. Through the second half of the year RevPAR performance is expected to be in the range of 80% to 90% of 2019 levels.
While Leisure travel growth will be an important part of the recovery this year, it will be critical to see demand and rate recovery in non-peak periods of the year from corporate and government and to a lesser extent meeting & conference business.
Bottom Line Impacts
In 2020, national RevPAR declined by 64%; the most significant decline recorded in the history of the CBRE Hotels Trends database. This RevPAR decline corresponded with a 95% erosion in bottom line (ANOI) performance which fell from $15,000 PAR in 2019 to just $820 PAR in 2020. The bottom line tracked by CBRE is ANOI before debt service—a significant cost for most owners. In 2019, assuming traditional debt financing, $15,000 PAR ANOI resulted in free cash flow of $7,300 PAR after debt service payments of $7,700 PAR. However, in 2020 with bottom lines falling to $820 PAR owners were faced with a cashflow shortfall of approximately $6,900 PAR. Canada was fortunate to see Government support (grant) programs which provided the average hotel with $2,200 in relief, reducing the cashflow shortfall to $4,700 PAR.
Eastern Canada Overview
Central Canada is expected to see RevPAR grow 53% in 2022 to reach $87. The growth in the region is expected to be led by Quebecwith projected RevPAR growth of 68% in 2022. The province saw good improvement in ADR in 2021 but in 2022 the recovery is projected to be driven by demand growth. For Ontario, the past two years were the best of times and the worst of times, with resorts and secondary/tertiary markets seeing far less impact than urban markets. Ontario’s RevPAR is projected to grow 45% to $82 in 2022. Similarly, the Atlantic region had strict “bubble” travel restrictions which placed a low ceiling on RevPAR in 2020 and 2021. In 2022, CBRE projects the Atlantic region to grow 45% to reach $65.
Eastern Canada Major Market Analysis
With the absence of most meeting & conference, corporate and government travel in 2020 and 2021, the major markets across Canada generally saw the greatest declines in RevPAR. However, as demand recovers and segmentation returns, CBRE believes that 2022 will be a year of significant improvement in topline metrics. Among the Eastern Canada major markets, Montreal is expected to lead the pack with RevPAR growth of 88% in 2022 to reach $94. Quebec City is close behind with a $93 RevPAR, growth of 70%. St. John’s and Halifax are also expected to see strong RevPAR growth with approximately 60% for both cities. Toronto’s RevPAR is expected to grow 50% to $85 as the downtown core recovers and suburban markets build on 2021 performance.
Western Canada Overview
Prior to COVID, the majority of Western Canada, was already dealing with challenging market conditions brought on by supply growth as well as demand and ADR declines resulting from the economic conditions. In 2022, CBRE expects the West to see moderate RevPAR recovery with 32% growth to reach $78. British Columbia, Manitoba, and Saskatchewan are all expected to grow RevPAR by approximately 30%. British Columbia is the only province expected to finish 2022 with a RevPAR above $100 due to the solid growth the province experienced in 2021. Excluding Resorts, Alberta is expected to see 40% growth to reach $55 RevPAR. While CBRE is projecting occupancies to grow in 2022, it is unlikely that they will break the 50% mark in the province’s current economic climate.
Western Canada Major Market Analysis
Similar to eastern markets, major markets in Western Canada are expected to see a lift in non-peak periods with the return of more diversified segmentation. Vancouver is expected to see the strongest gains in occupancy and rate in 2022 with RevPAR growing 48% to reach $117. Regina and Saskatoon are both expected to see gains of just over 10% in both rate and occupancy, with Regina projected to finish 2022 at $53 and Saskatoon at $59. Winnipeg is expected to grow RevPAR slightly by 44%—more from demand than rate increases—to reach $68 in 2022. Calgary and Edmonton are projected to grow RevPAR more than 50%, however unlike their fellow Western major markets, there are lingering supply and fundamental economic challenges which remain. Nevertheless, CBRE expects Edmonton to reach $53 and Calgary to reach $62 in RevPAR for 2022.