Vancouver’s hotel shortage piques investor interest

“Canada’s hotel industry is benefiting from elevated spending on discretionary services,” says Laura Baxter, director of hospitality analytics for Canada at CoStar Group.

In Vancouver, the city notorious for having Canada’s priciest land and real estate, July hotel room average rates soared to $346, the highest monthly rate ever recorded by a Canadian city.

Vancouver’s hotel occupancy was also the highest among the country’s major markets, at 87 per cent, according to CoStar data.

“Vancouver has incredibly high occupancy because hotel supply is constrained and has been over the past decade,” Ms. Baxter explains.

Vancouver’s record-breaking cruise business this year has also been “a key driver” of hotel rates, Ms. Baxter says. Cruise-ship visits are expected to reach 331 calls carrying up to 1.3 million passengers – many of whom book hotels alongside the cruise.

“It certainly puts a lot of strain on the city’s current hotel capacity,” says Destination Vancouver president and chief executive officer Royce Chwin.

According to a recent economic analysis from Destination Vancouver (formerly Tourism Vancouver), Metro Vancouver needs 20,000 new hotel rooms by 2050. The report also predicts that within the next three years, the demand for hotel rooms in the city of Vancouver will exceed supply and continue to grow by an average 2.7 per cent a year – with nearly 14 million overnight visitors expected by 2050.

Should the hotel-room shortage persist until 2050, the city will have forgone $31-billion in revenue, $8-billion in taxes and nearly 170,000 jobs, the report states.

Mr. Chwin says repercussions will also include “room rates that continue to go up, forcing some customers to simply go elsewhere. Vancouver will become an unaffordable boutique destination. That worries us from a city brand perspective: We do not want to be an elitist destination.”

Calling its hotel shortage “a dire situation,” Vancouver city council passed a motion in September that directs staff to set targets for new rooms, expedite development applications and update policies that inhibit growth, such as stringent zoning requirements.

(During the same council meeting, councillors voted to hike the Airbnb licensing fee by 800 per cent, from $108 to $1,000 a year. While aiming to increase housing supply, the move could also increase hotel demand by making it too expensive for property owners to operate a short-term rental business in their home.)

So far, Vancouver’s steep hotel room rates and the prospect of continued growth have piqued the interest of a number of investors, who aim to develop 1,200 rooms by 2027, according to city permit application records.

Notable projects include Vancouver developer Marcon’s rezoning application to build downtown Vancouver’s largest new hotel in more than two decades – a 32-storey, 578-room tower at 516-534 West Pender St.

Hong Kong-owned Paul Y. Construction, along with Vancouver’s Forme Development and Perkins & Will Architects, is planning a 30-storey downtown hotel tower with 393 guest rooms at 848 Seymour St.

And local developer Amacon aims to transform an office building at 1144 Burrard St. into a boutique-size hotel and is currently constructing another 120-room downtown hotel as part of a mixed-use condominium tower development at Robson and Beatty streets.

In 2021, Bosa Properties purchased a 55-year-old, seven-storey hotel and attached one-storey pub, located in the downtown-adjacent tech and creative hub of Mount Pleasant, at 888 West Broadway.

The firm originally submitted a proposal to convert the site into a two-tower hotel and office complex because at the time, Bosa was experiencing pandemic-related occupancy devastation at its other seven-year-old hotel, Element Vancouver Metrotown, and the work-from-home trend had yet to afflict the firm’s office buildings. (The 35-year-old company manages 5.5 million square feet of commercial space and has delivered 10,000 houses.)

Last month, Bosa submitted new plans, swapping out the office space for a full hotel complex of nearly 500 rooms and adding five more storeys.

Marc Ricou, executive vice-president, commercial and residential, at Bosa Properties, says Vancouver’s wildly successful
rebound from pandemic lows and undersupplied market “absolutely” influenced the new plan.

“With the strong performance of our first hotel, we’ve seen in real time how well the industry is doing,” he says. “At the same time, the office market has deteriorated since we purchased the site.”

Even with an estimated cost of $900,000 a room to build the premium hotel – about 40 per cent of which will be designed for extended stays with larger rooms – Mr. Ricou is clearly upbeat about the as-yet-unbranded project.

Market fundamentals bode well for “a great, great investment,” he says.

A search on booking.com in mid-September showed room rates for most premium hotels in Vancouver’s downtown area surpassing $1,200 a night. At that rate, Bosa’s new project could earn roughly $175-million a year, even at 80-per-cent occupancy.

Low-supply and high-rate fundamentals also mean “the city has been very supportive,” Mr. Ricou says. “On this project, in particular, we’ve had a great relationship with the city and planning department, working in a collaborative manner to make the project happen.”