Top concerns for the hotel industry
In Ontario, Tony Elenis, President and CEO of the Ontario Restaurant Hotel & Motel Association (ORHMA), stated that from a revenue per available room(RevPAR) perspective, the industry is back to pre-pandemic levels and has bounced back faster than most anticipated. Tony articulated, “The key drivers that have been leading the way have been from rate increases and domestic travel.”
However, Elenis cited several underlying concerns. “On the surface revenues seem good, however the core issue has been that rate increases are just covering all the inflationary drivers. Currently, operating costs are at +10%, construction costs are +25%, financing +40%, and all of these are eating into a hotel’s margin. This means that while the topline may be on par to pre-pandemic levels, that does not mean it is flowing to the bottom line.”
Tony Elenis, President and CEO of the Ontario Restaurant Hotel & Motel Association
Increased construction and financing costs have resulted in slower growth on new room builds and renovations, putting pressure on the supply side which is also affecting rates.
Elenis pointed out, “Historically, rates in Ontario have been lower on average vs comparable US cities. This goes all the way back to the SARS outbreak, where rates dropped significantly in order to attract visitors. It has been a long road to try to get rates back to levels in comparable markets. Some of the rate increases are based on a continuing correction, but most are simply to just cover costs.”
The second issue is who is traveling. Business travel is still lagging and has yet to bounce back. Business travel in big city markets is still down and will take time to recover. This is a result of the shift to home offices and virtual meetings. Government workers have not fully returned to the office either. “I was in Ottawa in December and the core was quiet. That not only impacts room revenues but it also impacts food and beverage, conference revenues, etc” states Tony.
Elenis also pointed out the larger issue with the business convention ‘cycle’. “The city of Toronto is likely not going to see some of the big conferences and conventions come back for the next couple of years as a result of the pandemic, as those events are booked several years out.”
The good news on the business side is that Ontario is still a leader in economic growth in North America and is attracting businesses. “I jokingly ask operators, ‘would you rather have a plant next to the hotel or a bus load of tourists?’ A plant helps drive consistent long-term growth, so trade is helping us.”
From a tourism perspective Elenis says hotels are betting on Canadians… “The financial pressures Canadians are facing right now are forcing many travelers to stay in Canada. That is an upside for Canadian hotels and is a key driver for the industry right now.”
The last issue Elenis raised concerns about were short term rentals. While you would think this would be based on the industry’s cry for fairness where they’re not paying the same taxes, not regulated like hotels, etc… Tony looked at it from another angle, “it’s about housing right now… While Canadians are rightly concerned about immigration, we need people. We are significantly short on workers. We want to work with the government to get us the right workers that we need. The issue being, is that they have nowhere to live and short term rentals are exasperating this problem. This is a significant macroeconomic issue and it is affecting our sector. Legislative changes to short term rentals could be a simple, low hanging fruit, option for governments to consider to help open up housing.
Tony remains optimistic about 2024 stating “the forecast is for a slightly slower growth period in 2024 vs 2023 but we are still moving in the right direction and we should expect to see an anticipated +3-4% increase in rates in Ontario.”
This is an excerpt from the Foodbuy 2024 Hotel Guide. To read the guide, click here.