Canadian Lodging Industry Overview - Hospitality & Gaming

A LOOK AHEAD Generally, the hotel industry in Canada over the last year has surprised even the most optimistic experts, with RevPAR by year-end likely delivering close to 7% improvement over 2016 and establishing 2017 as another record year. This buoyant environment is driven by a number of factors, including the anniversary celebrations mentioned previously. However, the exchange rate (both cross-border and internationally) continues to play an important role, making Canada an attractive and affordable destination to visit for key source markets. The great work done by Destinations Canada has reinforced Canada as a great place to vacation, and the appeal of our Prime Minister across much of the globe has also helped. The upcoming years look to be equally positive, with demand growth expected in virtually all markets. New supply is likely to temper occupancy gains, and it is concerning to see some markets, which are already struggling, with fairly large supply increases in various stages of the development pipeline. In reality, we believe some of these new hotel developments in the softer markets will be realigned to some alternate use, or delayed until better conditions prevail.

Hotel financing continues to be readily available as long as the project makes sense, and both domestic and foreign lenders continue to actively pursue deals – what a difference a few years make! There appears to be an increasing interest in hotel investment by first-time buyers, while the seasoned hotel investors sift through opportunities in search of the best way to deploy capital and optimize future returns. Perhaps one of the biggest concerns looking forward is the rapidly increasing price points associated with hotel transactions over the past few years. In 2017, we have seen the highest price per room paid for a hotel, as well as the highest-priced single hotel transaction in Canadian history. We are also seeing deals moving forward at price per room and with cap rates at unprecedented levels; this underlines investors’ optimism about the long-term future of the industry, but also raises the question as to how much higher can prices go. Another concern is potential increases in interest rates, although there is little evidence of any material increase in the near future, and most lenders impose fairly conservative financing criteria which will also help to hedge against rate increases.

For more information, contact: Brian Flood AACI P.App., MRICS Vice President Practice Leader, Hospitality & Gaming +1 416 359 2387 brian.flood@cushwake.com Charles Suddaby, CMC, MRICS Vice President Practice Leader, Hospitality & Gaming +1 416 359 2407 charles.suddaby@cushwake.com Cindy Schoenauer, AACI, RI Vice President Hospitality & Gaming +1 604 340 9141 cindy.schoenauer@cushwake.com Curtis Gallagher Vice President National Hospitality Services +1 416 359 2567 curtis.gallagher@cushwake.com

Through the expertise of more than 1,750 professionals in 130 offices, Cushman & Wakefield’s Valuation & Advisory group provides sophisticated advice on real estate equity and debt decisions to clients on a worldwide scale. Our capabilities span valuation and advisory services relating to acquisition, disposition, financing, litigation, and financial reporting, and 17 practice groups deliver real estate strategies and solutions to clients with unique operational, technical and business requirements. Access to real-time market data, the insights of Cushman & Wakefield’s leasing, research and capital markets experts, and the experience derived from more than 35 years of operation ensure the application of best practices and proven, successful methodologies. In 2016, the group completed assignments involving more than 245,510 properties valued at over $2.86 trillion. This report has been prepared solely for information purposes. It does not purport to be a complete description of the markets or developments contained in this material. The information on which this report is based has been obtained from sources we believe to be reliable, but we have not independently verified such information and we do not guarantee that the information is accurate or

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