More than 1,000 such hotel rooms are slated to open in Toronto and Vancouver over the next 12 months. But hoteliers aren’t worried about oversupply: They insist the five-star market is underserved

Steve Ladurantaye – Globe and Mail

During the darkest days of the recession, one thought kept going through Tony Cohen’s mind: Better to be building a luxury hotel through the downturn than to be opening one.

Mr. Cohen, who with partner Peter Freed is putting the finishing touches on the 102-room Thompson hotel in the western part of downtown Toronto, isn’t worried any more about filling rooms when the doors open in May. The economy is recovering, business travellers are slowing returning, and the market is far from saturated. Toronto and Vancouver, Mr. Cohen believes, have long suffered from a lack of luxury in the hotel sector.

That’s about to change. Within the next 12 months, more than 1,000 luxury hotel rooms are slated to open in each of those cities – a huge expansion that was planned before the recession hit, and one with uncertain consequences for an industry that was hammered during the downturn.

“This all may be happening at a crazy time, given what’s been happening in the economy over the last couple of years, but I maintain this market has been underserved,” said Mr. Cohen, who also operates a small luxury boutique hotel in Toronto called Le Germain. “This is a long time coming, and we really feel it’s all coming together at the right time.”

The past couple of years have been anything but the right time for Canada’s hotel industry. Revenue per available room, a key measure of the sector’s financial health, plunged 12%, according to data from Colliers International.

Insiders suggest that even that number flatters the truth, because many chains have kept room rates stable but offered free nights and other upgrades to attract guests. PKF Canada, a market research firm, estimated in its annual review that profitability at the nation’s hotels declined by 33% in 2009.

But there are hopeful signs emerging. Figures from STR Global, which tracks occupancy and rates week-by-week, show that life is slowly returning to the market. The average daily rate was up 0.3% at the end of March, to $118.77. Occupancy rates climbed 1.7% to 58.2%.

Hotels such as the Thompson, Trump, Four Seasons and Ritz-Carlton in Toronto and the Shangri-La, Fairmont Pacific Rim and Hotel Rosewood Georgia in Vancouver could help drive a renaissance for the embattled industry, said analyst Lyle Hall, managing director of HLT Advisory Inc. in Toronto.

“There is still some ugliness out there as the convention and meetings markets see softness,” Mr. Hall said. “But these brands have certain standards and price thresholds. Having them come in and push rates up should help. It’s the thing about rising tides lifting all boats.”

There are 12,000 hotel rooms within walking distance of Toronto’s Union Station, while the Olympic-fuelled boom in Vancouver has pushed the number of rooms in its downtown to 13,000. But both markets have been short on truly high-end offerings, industry analysts say.

There is no formal definition of what constitutes a five-star hotel. It generally refers to properties with a high staff-to-patron ratio and luxury restaurants and amenities. Colliers International executive managing director Bill Stone said the lack of such inventory has cost the cities financially, as large trade shows and upscale events opt for markets with higher-end facilities.

“You are going to see new business coming to these cities because they haven’t had this calibre of offerings before,” Mr. Stone said. “This is going to be better than people anticipate – people like to be at these places in a way that is different than more traditional hotels, and that attracts the corporate clientele.”

For the Ritz, the results are already evident. Though it won’t open until midsummer, advance bookings are already in place for weddings and bar mitzvahs. Site tours have been available for a year, and most of its 400 employees have been hired.

“Having these hotels will attract groups that would otherwise go to Chicago or San Francisco that already have them in the market. That is a certainty,” general manager Tim Terceira said.

While paying guests are the cornerstone of survival for any hotel, several of the developments have another advantage built into their business plans – they aren’t only hotels, they are also condominiums. With hundreds of property owners sharing the same space as vacationers, amenities such as restaurants and cleaning services have a built-in source of alternative revenue.

At the Ritz, for example, 135 condos will share the downtown Toronto location with 267 hotel rooms. The suites range from $700,000 for a standard condo up to an estimated $11-million for the penthouse.

“They’ve offered condo buyers a high level of services that don’t normally come with an independent building,” Mr. Stone said. “This helps with financing out of the gate, and the hotels also like it because it creates a feel that goes beyond the scope of a traditional offering.”

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