Canada’s hotel sector is showing signs of uneven pressure amid shifting economic conditions, according to the Hospitality Innsights Q1 2025 report by Cushman & Wakefield. The first quarter of the year saw moderate gains in average daily rates (ADR), while occupancy fell modestly. But more significantly, recent U.S.-imposed tariffs and declining cross-border travel have clouded forecasts for the remainder of 2025.
Economic headwinds alter outlook
At the close of Q1, new tariffs introduced by the United States contributed to a sharp downward revision in Canadian economic forecasts. Oxford Economics adjusted its 2025 GDP growth outlook down by 0.4 percentage points to 0.7 per cent and predicted a slight economic contraction for 2026. Inflation is now expected to rise to 3 per cent by year-end, and unemployment could reach 7.7 per cent.
This shift in macroeconomic expectations has had a direct effect on the hospitality sector. Hotel performance, closely tied to economic indicators such as employment and capital investment, is expected to soften. National occupancy declined 2.7 per cent in March and a further 1 per cent in April compared with the same months in 2024. Ontario and Quebec, home to Canada’s largest manufacturing and industrial sectors, were hit hardest with April occupancy declines of 2.3 per cent and 2.8 per cent respectively.
Cross-border travel cools
Canadian and U.S. travel volumes also declined in the wake of deteriorating bilateral relations. Canadian resident return trips by automobile dropped 31.9 per cent in March, while inbound U.S. traffic declined by 10.6 per cent. Air travel by Canadians to the U.S. fell 13.5 per cent, although U.S. residents made slightly more trips to Canada than in March 2024.
These developments coincided with a shift in hotel demand patterns. Leisure demand within Canada has helped offset some of the softening in corporate and group travel, and some U.S.-based group bookings have been repositioned to Canadian destinations. However, overall demand is expected to remain subdued.
“Room demand will soften and the composition of demand will likely shift,” the report notes, adding that ADR could continue to grow during the summer thanks to seasonal rate compression, but longer-term rate growth and occupancy are likely to be more challenged.
Q1 performance: national and provincial trends
For the first quarter of 2025, Canada’s hotels posted a 1.9 per cent increase in revenue per available room (RevPAR), driven by a 2.9 per cent increase in ADR to $186.11. Occupancy dipped by 0.9 per cent year-over-year, settling at 55.6 per cent.
Provincial results varied widely. Manitoba saw the largest RevPAR drop at 13 per cent, linked to the end of the Canada-Ukraine Authorization for Emergency Travel (CUAET) program, which had provided significant demand in markets such as Winnipeg. Newfoundland and Labrador also saw RevPAR fall by 8.4 per cent due to reduced government contract volumes.
On the positive side, Saskatchewan led all provinces with an 8 per cent gain in RevPAR. Prince Edward Island, Alberta, and Quebec followed with gains of 5.6 per cent, 4 per cent, and 3.8 per cent, respectively. British Columbia and New Brunswick also reported year-over-year improvements.
Market-level analysis
Among Canada’s major hotel markets, Quebec City recorded the highest Q1 RevPAR growth at 10.9 per cent, followed by Victoria (8.6 per cent), Ottawa (8.4 per cent), and Edmonton (8 per cent). Calgary (-5.3 per cent) and Winnipeg (-15.7 per cent) experienced notable declines.
Winnipeg’s steep year-over-year drop reflects the disappearance of large-scale contract business that had previously inflated its results. Meanwhile, Toronto, Montreal, and Vancouver all posted relatively stable performance near the national average.
Investor sentiment: cautious but active
Insights from the Canadian Hotel Investment Conference, held in Toronto in May, reinforced the sense of caution in the sector. Although inflation and unemployment are both expected to rise, hotel lending availability has improved post-COVID, and investors continue to seek acquisition opportunities.
A shortage of hotels for sale in central Canada is pushing buyers to consider assets in other provinces. However, pre-development timelines remain long and new supply will be limited due to high construction costs and trade-related risks.
Despite the tempered outlook, Cushman & Wakefield notes that trade disputes are often short-lived. “Historically, trade disputes are often short lived, and economies tend to quickly rebound,” the report states, though it acknowledges that the duration and impact of the current U.S. dispute remain uncertain.
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