Strong and consistent operating fundamentals, resilient revenue streams, inflation-hedging capability and value-add opportunities are bringing the hotel asset class out of the alternative grouping and into the investment mainstream.

Colliers managing director of hotels Robin McLuskie led four panellists in discussing the performance of the sector and why it’s growing in appeal during the recent Real Estate Forum conference at the Metro Toronto Convention Centre.

“Once considered niche, hospitality is now central to investment strategies for a new wave of capital we're seeing out there,” McLuskie explained. 

“There are new players on both the equity and debt side(s), more institutional capital looking at the space, and other major real estate players that are leaning in like never before.”

Growing revenue per available room

Carrie Russell, senior managing partner for HVS — the only global consulting firm focused exclusively on the hospitality industry — followed McLuskie’s introduction by offering statistics to illustrate the health of the sector.

Most hotels survived the huge drop in business due to the COVID-19 pandemic and have recovered quickly. Revenue per available room (RevPAR) levels at the end of 2024 were 28 per cent higher than the previous 2019 peak and have continued to grow this year.

“The leisure market is the underlying factor that's pushing the overall performance up,” Russell said, noting RevPAR exceeds national levels across Western Canada, and particularly in British Columbia and Alberta. 

Ontario and Quebec had positive results, though a bit softer than the national average, and the Maritime provinces enjoyed busy summers and 8.9 per cent growth. Occupancy through the end of September was 67.8 per cent.

Downtown Vancouver leads the country in RevPAR, pushing up toward $300. It’s followed by downtown Toronto, Victoria, downtown Montreal and Quebec City.

Mississauga, Winnipeg and Saskatoon rank at the bottom of major cities with lower RevPAR rates despite healthy occupancy.

Development and transaction activity

There are currently 460,000 hotel rooms in Canada and 75 hotels with 8,654 rooms under construction across the country. If they were to all open next year (though that is not the case) that would represent a 1.9 per cent increase in supply — well above the annual average of between 0.5 and one per cent.

McLuskie estimates there will be about 130 hotel transactions worth approximately $2 billion, with the average price per room rising to $185,000, in Canada this year. There have been more deals worth over $50 million, and over $100 million, this year than in 2024.

“On select service, limited service, suburban and urban hotels, we are seeing upticks in pricing across the country,” McLuskie said.

Much of the capital is coming from Canadian sources, but Asian buyers have accounted for about $200 million in purchases. 

Room prices didn’t drop after pandemic

“What came out of COVID was that, for the first time in the last 25 years in downturns, people actually held prices,” Knightstone Capital Management president and chief executive officer Alan Perlis observed.

There was pent-up demand to travel after the pandemic and people were willing to pay, but Perlis said room prices have now stabilized somewhat so investors have to be more prudent and strategic and look at things market by market when looking to grow their hotel portfolios.

Sunray Group president and chief operating officer Kenny Gibson said his company manages all of its hotels and is doing very well on the room side of things, but has struggled a bit trying to squeeze margins out of food and beverage operations. 

Sunray Group is also getting calls from new entrants to the market asking it to manage their hotels.

Hotel financing

“Banks are lending now and hotels are a favourite asset,” Gibson said. “In this cycle, we're seeing a lot of new entrants and a lot of new development, but the demand continues to grow.”

CFO Capital president Mark Kay said there were only three or four lenders working with hotels in the late 1990s. Now there are more than 50 institutions — including banks, credit unions, trust companies, pension funds and foreign institutions — active in the space in Canada. That’s created a significant amount of liquidity.

“We're having a lot of construction right now and 50 per cent of the construction is by new parties entering the industry,” Kay said. “Why? Because the lending market is allowing that.”

The loan-to-cost ratio averages between 65 and 70 per cent for the acquisition of a stabilized asset, about 70 per cent for new construction, and as high as 80 per cent for the conversion of a building from another use to a hotel, Kay said.

Non-brand and soft-brand hotels

Lenders are becoming more interested in non-brand hotels, which is a change from the past.

There’s also been an increase in soft-brand hotels, which don’t operate under a well-known banner like Hilton or Marriott and don’t use their designs, but they’re allowed to use those companies’ reservation systems, loyalty points programs and distribution networks.

“It's become very popular because it's easier to fit that into a renovation of a box that was an old hotel, or a conversion from an office or a warehouse or something,” Perlis said. “You have a little more flexibility and creativity, and there's less structure to the relationship.”

Kay provided an example of Hotel X Toronto, on the city’s Canadian National Exhibition grounds, benefitting after soft branding with Hyatt earlier this year. 

“It’s what the customer is craving,” McLuskie said of soft brand hotels. “The next generation wants unique spaces that have more collaborative areas in the lobby and bars and fun design that’s a bit different from traditional boxes. 

“I think it has been a win-win and has allowed the brands to grow.”