Strong recovery in the hotel sector for Q2 2022: Cushman & Wakefield

Cushman & Wakefield highlights the key dynamics of the Canadian hospitality sector, along with a glance at the hotel cap rates across Canadian markets.

Nkululeko jonas f Se Kcdze ZTE unsplash

2022 will be the pivotal year of the recovery. In the latest version of Cushman & Wakefield’s INNSIGHT Quarterly report on the Canadian Hospitality sector, analysts discuss the surge in room demand and average rates across the country as well as transaction activity, hotel cap rates and the outlook for the rest of the year as well as breaking down key numbers alongside expert commentary to help you understand how the sector is performing as the recovery accelerates. 

Market recovery

Q22022 has seen a strong recovery in the hotel sector. While occupancy continues to improve nearer 2019 levels, the strength of ADR growth has surprised many — particularly during periods of relatively concentrated demand. Hotel performance across Canada reached 100 per cent index in mid-June, and for the weeks ending June 18th through July 9th, RevPAR actually surpassed 2019 levels.

Several factors such as the current wave of COVID, travel infrastructure and capacity issues and increased gas prices, may result in a slight slowdown in demand growth. However, it is expected that with the absence of widespread restrictions and lockdowns, the hotel sector should continue to see improvements throughout the remainder of 2022 as group and corporate demand continue to rebuild. Overall, the hotel market is still on track for a strong recovery in 2022 with performance in most markets expected to recover or surpass 2019 performance in the next 1 – 2 years.

The following chart shows occupancy, ADR and RevPAR performance over the various COVID waves, as identified by Destination Canada. Performance began to increase swiftly in June 2021, and despite a decline in early 2022 due to the Omicron-variant, there has been continued growth throughout 2022.

Leisure markets continue to lead the country in RevPAR growth

In Q22022, we saw triple-digit RevPAR growth in all of the top 10 markets, with many downtown and leisure destinations seeing the strongest growth. Strong levels of leisure travel throughout the early summer months have driven RevPAR growth above 140 per cent in the top three markets. As many Canadians become more confident with travel, they are looking to catch up on much-delayed gatherings and vacations. This has fueled a surge in domestic travel, which has remained strong into Q2.

Transborder and international travel has also increased over the last few months; however, continued issues at many major Canadian airports and reduced flight schedules have impacted inbound foreign travel. Recent weeks have also seen increased corporate travel, while there has been stronger demand for small to medium-sized meetings and events. While some larger conventions, conferences, and events have taken place in Q1 and Q2, hotels have reported seeing stronger demand for these types of large-scale events later in 2022 and into 2023.

Major cities see recovery

Canada’s major cities all showed significant RevPAR growth in the first half of 2022. The strongest growth was seen in Halifax at 307.7 per cent, followed closely by Quebec City and Montréal at 283.0 per cent and 260.2 per cent, respectively. These three markets are popular leisure destinations and have been attracting both domestic and international vacationers.

Montréal also had a very strong June with numerous conferences and events including the F1 Montréal Grand Prix and Lions Club International Convention. Toronto, Ottawa, Calgary, and Victoria are in the mid-range of growth between 190 per cent growth (Victoria) and 217 per cent growth (Toronto). The markets with the softest growth, although still notable, are Vancouver, Winnipeg, and Edmonton at 184.6 per cent, 157.3 per cent, and 144.2 per cent, respectively.

ADR Recovery

Throughout the pandemic, ADR performance consistently remained stronger than occupancy, showing less significant declines and a quicker recovery. Through the first half of 2022, many major markets have shown remarkable rates of ADR growth as improvements in demand have allowed hoteliers to drive record rate growth.

In the YTD June 2022 period, 4 of the 10 major markets have seen ADR reach and surpass full-year 2019 ADR. With 6 months left in the year, including the typically strong months of July, August, and September, it is expected that more markets will reach this milestone in Q3.


While the path to recovery will certainly not be straightforward, the Canadian accommodation market is on the right path and is expected to see continued growth over the balance of the year. Halfway into 2022, many hoteliers are seeing pent-up demand from corporate and leisure travellers, as well as for small meetings and events. Large-scale conventions and conferences, as well as some corporate travel is expected to see stronger growth over the balance of 2022 and into 2023. Overall, the market is still on track to see around 75 per cent of all demand recovered in 2022.

In 2020 and 2021, hotels located in urban markets and convention destinations clearly lagged in recovery. These hotels rely on air travel and citywide events — demand generators that were severely impacted by border closures (international and interprovincial) and gathering limits. Many consumers also preferred hotels in resort and nonurban destinations for outdoor activities and physical distancing.

In Q12022, recovery was underway, albeit moderated by border pre-entry testing requirements and Omicronrelated public health restrictions. As illustrated above, the volume of screened passengers at Canada’s largest airports improved markedly in Q2, reaching 81 per cent of 2019 levels in June. The increased volume reflects eased air travel requirements and removal of COVID-related restrictions, as well as continued strong leisure demand.

Meanwhile, citywide events are returning to Canada’s major cities, with multiple convention centres expecting a strong 2022. The largest events include F1 Montréal Grand Prix, Toronto Collision Tech Conference, Calgary Stampede, and Vancouver TED Conference. This June, RevPAR for urban and convention hotels surpassed June 2019 RevPAR levels. For the first half of 2022, RevPAR was at 75 per cent to 80 per cent of first half 2019 levels. Despite some challenges with the BA.5 variant, airline capacity issues, inflation and recession fears, the recovery outlook for the second half of 2022 remains positive as Group and Corporate demand continue to improve.

Hotel Investment

The strong recovery in the hospitality sector has been attractive to investors who see continued income upside in the near to mid-term. The escalation in land and construction costs has also entered the calculus for investors who see existing assets as relative bargains compared to building new hotels. Acquisitions of older assets for renovation and repositioning and the resort sector continue to attract a lot of interest. Normalized cap rates for hotels in the first half of the year remained steady as demand for investments kept rate increases in check. 

In Q2 we tracked 72 sales with a total sales volume of $585M. This is volume is below the same period in 2021 when we recorded 109 sales for a total volume of $876M. The 2021 data was not truly reflective of market conditions at the time as it included 35 sales which were sold for alternate uses or redevelopment.

In 2022 there were fewer sales for alternate uses and the majority of transactions continue to be properties located in secondary and tertiary markets.


High inflation is impacting hotel operating costs as costs for labour and goods have risen sharply this year. Hotels, however, can quickly adjust prices which allows for a certain amount of protection against rising costs. Although inflation is currently at high levels, it is expected to be a short-term situation until supply issues are resolved and pent-up demand dissipates. Despite higher-than-average inflation forecasts in 2022 – 23, long-run inflation expectations (510 years) have not changed significantly at this time.

H2 Outlook

Entering the second half of the year, rising interest rates, high inflation and prospects of a recession will temper investor appetite. Since January the BOC 10-year bond yield has risen from 1.43 to 3.07 per cent in mid-July. This increase in costs is creating some challenges for disciplined investors who will need to adjust return expectations in the near term. To date, we have not seen the impact of interest rate increases reflected in market transactions given the lag time between negotiation and closing of a sale. Brokers do report deals are taking longer to finalize and most expect to see a slowdown in demand in the near term. Cushman and Wakefield’s Q22022 cap rate survey does indicate rising rates for lesser quality retail and office investments based on weaker market sentiment for these types of assets.

In terms of future movement in capitalization rates, rates are more driven by capital flows versus changes in interest rates. Cap rates also reflect the longer-term prospects for the property over an extended holding period versus limiting the value impact of short-term rate increases. For hotels specifically, upward pressure on cap rates is also being offset by the current sector recovery which will result in significant income growth and continued investor interest in the sector.

To view the full report and graphics, visit Cushman & Wakefield Canada.