Hotel rates rise as hospitality sector revenue begins to rebound

Hotel rates are rising after travel resumes in force this summer.

A room at the Annex Hotel in Toronto cost an average of $250 before the pandemic. Now it’s $300.

“We saw a healthy rebound in normal guest behavior in the second quarter as more people decided to head into town,” said Ryan Killeen, COO of the Annex, a property of charm on Brunswick Avenue. “We have 24 rooms and are operating at nearly 100% occupancy until October.”

He said bookings picked up in March 2022 and remained stable.

“We just set the price based on the market situation. Right now, most hotels charge $100 to $200 more per night,” Killeen said. “Some of our rooms cost $400. We don’t measure prices, we market ourselves accordingly. »

Rising prices are contributing to the hotel revenue forecast for 2023.

In Canada, June and July saw revenue per available room – a key indicator of hotel performance that divides average daily rate by occupancy rate – surpass 2019 levels, and August is expected to follow, according to a recent report by CBRE Canada, a commercial real estate services and investment company.

CBRE forecasts national income per available room to reach $97 by the end of 2022, just below the 2019 national average of $106. Going forward, by 2023, Toronto will reach $129 per room, up significantly from $114 in 2022.

Travel rebounded amid easing restrictions largely driven by leisure travel, particularly from domestic and US visitors, and the restart of festivals and events such as Pride, the Toronto International Film Festival and the Canadian National Exhibition,” said Nicole Nguyen, Senior Director of CBRE’s Hospitality Division.

“Operators have seen very high volumes of people returning to travel and downtown Toronto has seen incredible rate growth,” she said.

The average daily rate has also risen this year to keep up with inflation and the rising cost of goods and services, said Wayne Smith, acting director of hospitality and tourism management at the Ted Rogers School of Management.

“Wages have risen significantly to keep pace with market demand and the cost of doing business has risen significantly,” he said. “Hotels are emerging from two years of very little activity. With little savings and skyrocketing prices, rates will rise.

Quebec is expected to lead the hotel recovery in Eastern Canada with rate and occupancy gains of 17% in 2023. Ontario growth is expected to be a more modest 9%, but with significant tourism growth expected in Niagara Falls at 19% per year. over the year.

While leisure travelers helped boost Canadian hotel occupancy over the summer, international, corporate and group (conference) travel has been slower to return. Markets that rely on business travel, including Toronto, continue to face challenges, the report notes.

“Rates are higher, which is why revenue looks so positive, but occupancy is still below pre-pandemic levels in Toronto,” said Andrew Weir, executive vice president of Destination Toronto. In 2019, hotels in the city had an occupancy rate of 74%, which is expected to stabilize at 68% in 2023, notes CBRE.

Lectures have also returned after two years, but many are postponed from dates in 2020 and 2021, meaning it’s a delayed reaction, he said.

“We are attending postponed conferences. In the coming years, we may see a gap because many people have not booked spaces and accommodations during the pandemic,” Weir said, adding that conferences are booked years in advance.

International travel has also plummeted as Canada’s COVID-19 vaccination mandate and random testing at the border are still a deterrent to many wishing to visit the country. These restrictions are expected to be lifted at the end of this month. And some countries still have restrictions on foreign travel, such as China, which does not allow citizens to travel abroad for non-essential reasons.

In 2019, China was the largest international market except for the United States, which came to Toronto with 300,000 visitors, Weir said. “Right now, we have hardly any visitors from China. It’s hard to invent. We won’t get these numbers just from domestic travel,” he added.

The report is optimistic that demand will continue to rise and rates will recover in urban and rural destinations, but for cities like Toronto, business and international travel are key to the economic recovery of the hotel sector. .

Killeen predicts hotel rates will stabilize as room costs right now “feel a little inflated,” but high rates are helping to offset pandemic-related losses.

“We are seeing an increase in income, while at the same time inflation has driven up costs,” he said. “Like any business, you have to ride the wave and adjust costs to compete with the market and right now that means higher rates. Whether it’s sustainable is another story.

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