Canadian Lodging Industry Overview - Hospitality & Gaming

A Cushman & Wakefield Valuation & Advisory Publication

Get the lowdown on influential trends within

the hotel industry.

HOT TOPICS Direct and Third Party Bookings

design standards. In Canada, existing modular-constructed hotels are mainly in the focused- and limited-service levels. Challenges for this innovative approach include finding shipment storage during installation, a limited number of experienced contractors, and limited exposure to and understanding by lenders and regulators. Soft and Conversion Brands Major hotel chains are expanding their portfolios by launching soft brands, defined by STR as, “individualized hotels that give owners and operators the opportunity to affiliate with a major chain distribution while retaining their unique design, name, and orientation.” While initially positioned for the upscale and luxury classes, more recent launches have expanded to include midscale products. Soft brands provide owners with access to hotel chains’ sales and reservation systems and loyalty programs, while having greater independence and fewer operating standards as compared to ‘traditional’ brands. Hotel chains, meanwhile, obtain greater diversification and coverage while capturing more customer segments. Intended to improve financial performance and value, hotel conversions have become quite common – not only between peer brands but also between different brand tiers. Key considerations for selecting a conversion brand include brand strength, market opportunity, customer demand, and physical asset. Other key considerations are upcoming product improvements required by the existing brand and an expiring franchise agreement. In Canada, converted hotels have generally raised their product class and/or changed brand. Many converted hotels were previously independent (non-branded) properties.

Competition for hotel room bookings continues to escalate as online travel agencies (e.g., Expedia) and metasearch engines (e.g., Booking.com) have evolved from additional distribution channels to true competition. More recent and major entrants are TripAdvisor and Google. Both the share of bookings and commission per booking of third-party channels have increased in recent years. These significantly add to hotels’ distribution channel costs and negatively impact revenue yields and, ultimately, profits. Hotel chains have responded by encouraging direct bookings with such initiatives as rate parity and loyalty membership perks. In addition, chains have continued to invest in mobile and on- property technology. Third party channels continue to account for significant room bookings, particularly by leisure customers that are generally price sensitive and/or brand neutral. Modular Construction As land and building costs continue to rapidly increase, particularly in high barrier-to-entry markets and major cities, modular construction in the hotel industry is currently in early adoption stage. Modular construction involves manufacturing and assembling building materials and components off-site, which are shipped for on-site installation. It is typically used for new builds but can also be used for extensions/expansions. Reported key benefits include cheaper development costs, shorter construction timeline, improved quality control, and reduced environmental impacts from using a climate-controlled factory. Full modular construction involves all guest rooms completely assembled off-site, but public areas, infrastructures, and systems are often still built on-site. Modular construction is particularly suited for franchised hotels with pre-defined architecture and

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