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Challenge of meeting rising demand has become a hot topic in cities such as Vancouver
Published Jan 13, 2025 • Last updated 4 hours ago • 6 minute read
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A Taylor Swift sign at Cambie Hotel in Vancouver, B.C. on Nov. 26. Photo by Arlen Redekop/Postmedia files
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The hotel industry, steadily making its way back from the disastrous pandemic years in which revenues plummeted by an estimated 80 per cent in 2020, was one obvious beneficiary of “the Swift effect,” with Taylor Swift’s record-shattering Eras Tour reverberating beyond the music world.
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In Toronto, the pop star’s six November shows sold out within minutes, caused a spike in hotel bookings months in advance and drove an 83 per cent surge in hotel revenue. Swift’s Vancouver stand in early December brought similar results.
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The influx of so-called Swifties added fuel to an ongoing debate about whether major Canadian cities have enough hotels to meet such peaks in demand, especially as demand in general is increasing.
Adam Jacobs, national head of research at Colliers International Group Inc., said a unique confluence of factors is fuelling the sector’s growth.
“We’re seeing a hospitality renaissance,” he said. “Cultural megastars like Swift are catalysts, but the rebound is part of a broader trend of pent-up demand for experiences.”
Jacobs said the hotel sector is benefiting from a rise in leisure travel, as well as from corporate and event-related tourism.
“Companies are reinvesting in in-person events, conferences and retreats,” he said. “That’s creating a ripple effect across hotels, restaurants and local attractions.”
In cities such as Vancouver, the challenge of meeting rising demand has become a hot topic.
“There’s a lot of talk in Vancouver because it’s such a destination cruise ship port,” Jacobs said, referring to the city’s global appeal for travellers from Hong Kong, China, Singapore and Australia. “You get a big cruise ship coming in, and suddenly the Fairmont and the major hotels are full. People are wandering downtown looking for accommodations and sometimes end up 10 kilometres away or more, in Airbnbs or suburban hotels.”
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For example, cruise terminals like Canada Place in Vancouver are centrally located, but the spike in demand often leaves visitors struggling to find available rooms nearby.
It’s hard to build new hotels, so investors see value in what’s already there
Adam Jacobs
The limited availability of land in downtown Vancouver has made competition for prime real estate intense.
“Developers are vying for locations that could easily become office towers or condos instead,” Jacobs said. “Hotels get squeezed out, making the market for existing properties very competitive.”
He said the limitations on new construction have created an active investment market, with buyers increasingly choosing to acquire existing hotels or bundled portfolios of multiple properties sold as a single investment opportunity.
“It’s hard to build new hotels, so investors see value in what’s already there,” he said.
Hotels across Canada performed exceptionally well in 2024, with occupancy reaching record levels not seen since 2018 — 20 per cent above pre-pandemic rates — according to Laura Baxter, director of hospitality analytics at CoStar Group Inc.
“From an average rate perspective, we’re seeing about three per cent growth year over year,” she said.
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Rising interest rates could have dampened discretionary spending, which might have reduced travel, but demand for both leisure and business travel continues to be strong. A slight softening is expected in the first half of 2025, but growth is projected to rebound later in the year, with demand increasing by 1.5 per cent driven by stronger household spending.
The outbound American travel market is a key driver of growth for Canadian hotels, accounting for roughly 70 per cent of all international overnight stays, according to Statistics Canada data. Those stays were still nine per cent below 2019 levels in the first nine months of 2024, but the gap had narrowed by six percentage points since the end of 2023.
The exchange rate is working in our favour
Adam Jacobs
A weaker Canadian dollar is also boosting demand.
“The exchange rate is working in our favour,” Jacobs said. “We’re becoming a value destination for Americans, which is critical as they account for the lion’s share of our international overnight stays.”
Tighter regulations on short-term rental platforms such as those offered by Airbnb Inc. may also be working in the hotel industry’s favour. The measures enacted by various governments aim to prevent short-term rentals from functioning as unregulated hotels, reducing alternative lodging options and potentially redirecting travellers toward traditional accommodations, particularly during peak seasons and major events.
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For example, Vancouver’s new rules, introduced in January 2024, require permits for short-term rentals and enforce primary residence restrictions, building on earlier measures from 2018 that included licensing fees. The city estimates it has 250 to 400 active rentals, many of which now face stricter enforcement through fines and partnerships with Airbnb to identify illegal listings.
Though it’s difficult to quantify, Baxter said “the regulations should positively impact hotel demand” and that the reduction in short-term rental listings likely supports this shift.
Toronto implemented stricter bylaws on Jan. 1, raising registration fees, enhancing host vetting and allowing snap inspections, and Montreal’s 2023 regulations required platforms to remove unlicensed listings and comply with zoning rules.
“The new regulations remove the risk of more short-term rentals being used as unregulated hotels and should facilitate the development of regular hotels,” Baxter said.
The federal government, meanwhile, is preventing expense deductions from being claimed by short-term rental owner or operators if their property is in an area that prohibits such operations. The government in December also launched a $50-million Short-Term Rental Enforcement Fund to help municipalities enforce their existing short-term rental regulations.
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Calgary’s resilience is paying off
Adam Jacobs
Meanwhile, some municipalities are benefiting from diversifying their economies, which is also creating opportunities for hoteliers. For example, Calgary has reduced its reliance on the volatile oil and gas sector, which has brought in more visitors for tech conferences, renewable energy summits and other events.
“Calgary’s resilience is paying off,” Jacobs said. “There has been a steady uptick in urban hotel transaction volume and investors are seeing the long-term potential as the city attracts more tech and service industries.”
Other trends reshaping the hotel landscape include sustainability initiatives, such as the Green Key Global program, which are gaining traction. That program provides sustainability certification for hotels, helping them align with eco-friendly practices that reduce energy and water use.
Beyond environmental benefits, going green bolsters the bottom line by reducing operating costs. For example, implementing energy-efficient lighting, HVAC systems and water-saving technologies can significantly lower utility bills. Baxter said this is a critical shift for the industry.
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“Sustainability is being taken into consideration all throughout organizations and all the way through to the ownership community here in Canada,” he said.
Further innovations, such as the adoption of dynamic pricing systems that allow hotels to adjust room rates in real time based on market conditions, have boosted revenues and helped the hotel industry recover.
The hotel industry has outperformed most sectors of commercial real estate (CRE) since the pandemic. Overall CRE prices dropped more than 20 per cent since 2020, according to PricewaterhouseCoopers Canada, with office properties declining by more than 33 per cent and retail and industrial sectors experiencing equally sharp losses. By comparison, hotel values fell just 10 per cent.
Industry optimism is evident in all the planned construction, with more than $1 billion in new investments projected for 2025. Several foreign hotel brands are entering the Canadian sector, while domestic chains are expanding.
For example, Marriott International Inc. has dozens of new hotels in its Canadian pipeline, while Hyatt Hotels Corp. is set to more than double its footprint with 23 new locations by the end of 2026.
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In all, approximately 6,000 new hotel rooms are expected to be built across the country in 2025, 60 per cent of them in Ontario. Many projects are concentrated in suburban markets outside Toronto’s downtown core, where demand has remained consistently strong.
“(Hotel) rate growth has been so considerable over the past few years that it has covered rising construction costs, enabling brands and developers to move forward with new projects,” Baxter said.
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