Hotel rates surge as revenue in hospitality sector begins to bounce back

Hotel rates are surging after travel roared back this summer.

A room at Toronto’s Annex Hotel cost on average $250 before the pandemic. Now, it’s $300.

“We saw a healthy rebound in normal guest behavior during the second quarter, as more people decided to travel into the city,” said Ryan Killeen, chief operating officer at the Annex, a boutique property on Brunswick Avenue. “We have 24 rooms and are running at nearly 100 per cent occupancy through October.”

He said bookings picked up in March 2022, and have remained steady.

“We’re just pricing it to where the market is at. Right now, most hotels are charging $100 to $200 more per night,” Killeen said. “Some of our rooms are going for $400. We’re not price gauging, we’re marketing ourselves accordingly.”

The boost in prices is helping projected hotel revenue for 2023.

In Canada, June and July saw revenue per available room — a key indicator of hotel performance that divides the average day rate by occupancy rate — exceed 2019 levels, and August is expected to follow suit, according to a recent report from CBRE Canada, a commercial real estate services and investment firm.

CBRE projects that the national revenue per available room will reach $97 by the end of 2022, just shy of the 2019 national average of $106. Looking ahead, by 2023 Toronto will reach $129 per room, up significantly from $114 in 2022.

Travel has bounced back amid loosening restrictions largely due to leisure travel, especially from domestic and US visitors, and the rebooting 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 hotel division.

“Operators saw really strong volumes of people coming to travel again and downtown Toronto had incredible rate growth,” she said.

The average daily rate also increased this year to keep up with inflation and the higher cost of goods and services, said Wayne Smith, interim director of Hospitality and Tourism Management at the Ted Rogers School of Management.

“Wages drastically increased to keep pace with market demand and the cost of business increased dramatically,” he said. “Hotels are coming off of two years of very little business. With little in savings and prices skyrocketing, rates are going to go up.”

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

While leisure travelers helped boost Canadian hotel occupancies over the summer, international, corporate and group travel (conferences), have been slower to return. Markets dependent on business travel, including Toronto, continue to face challenges, the report notes.

“Rates are higher, which is why revenues look so positive, but occupancy is still down below pre-pandemic levels in Toronto,” said Andrew Weir, executive vice-president of Destination Toronto. In 2019, the city’s hotels had 74 per cent occupancy, which is projected to settle at 68 per cent in 2023, CBRE notes.

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

“We’re seeing rescheduled conferences. In the years ahead we might see a gap because many people didn’t book spaces and accommodations in the pandemic,” Weir said, adding that conferences are booked years in advance.

International travel has also taken a dive as Canada’s COVID-19 vaccination mandate and random testing at the border are still deterrents for many wanting to visit the country. Those restrictions are due to be lifted at the end of this month. And some countries still have outbound travel restrictions, such as China, which doesn’t allow citizens to travel abroad for non-essential reasons.

In 2019, China was the largest international market, apart from the US, that came to Toronto with 300,000 visitors, Weir said. “Right now we’re basically at zero visitors from China. It’s hard to make that up. We’re not going to get those numbers just from domestic travel,” he added.

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

Killeen predicts hotel rates will level off as the cost for rooms right now “feels a bit inflated” but the elevated rates are help make up for pandemic losses.

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

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