Hotel occupancy creates incentive to build capacity
City zoning policy now encourages new building, restricts redevelopment
A lack of hotel rooms and solid demand from visitors for a place to sleep in Vancouver should be spurring developers to develop more hotels, say commercial property experts.
Vancouver welcomed 10.67 million overnight visitors to the region in 2018, with predictions of an increase in 2019 of 2.8 per cent.
Meanwhile, hotel occupancy in Vancouver is predicted to reach 81 per cent for 2019, a rate that typically spurs hotel development in other major international cities.
The growing number of visitors to Vancouver has more hoteliers, investors and developers eyeing the market for future investment, said Saravan Veylan, a partner at MLT Aikins LLP in Vancouver who specializes in corporate law in the tourism industry.
“This city is in an extremely advantageous position to attract all the banner brands and boutique hoteliers,” he told Postmedia. “Even conservative capital is on the hunt for the right project in Vancouver.”
The number of hotel rooms in the city has been on the decline, with 1,105 rooms eliminated between 2010 and 2018 due to conversions or closures.
Vancouver has lost more hotel rooms than it has gained in the last three years, confirmed David Ferguson, director of valuation, advisory with CBRE brokerage house in Vancouver. (Moreover, the Four Seasons Hotel Vancouver is set to cease operations next month.)
CBRE’s data shows that roughly 500 new rooms are being built or planned across various projects within the City of Vancouver through 2022, but more are needed to keep pace with demand.
“Shovels are not in the ground for some of these,” Ferguson told Postmedia.
Meanwhile, CBRE has estimated that the revenue per available room in Vancouver is expected to increase by up to eight per cent in 2019 as occupancy has climbed.
“If you have a major urban market anywhere in the world that’s hitting 80 per cent occupancy, you’re typically seeing new supply constructed,” Ferguson said. “There is still room for more rooms to get built, absolutely. ”
There have been other challenges that have prevented substantial new hotel projects, including more perceived value in other types of real estate, he said.
“The scarcity of land (and) the returns other assets have generated for development have led developers to look at office, or multi-family, or industrial as being more lucrative,” Ferguson said.
Last year, the City of Vancouver updated its zoning bylaws for certain sections of the downtown core to protect existing hotels from redevelopment and to encourage residential developers to include hotel components in their projects.
Veylan said that update should help to create some new hotel rooms.
“Rightly or wrongly, the city has developed a reputation for being somewhat slow to grant these approvals, but that’s not what we’re seeing after the policy changes that have been made,” he said.