In preparation for the 2005-2006 Canadian Accommodation Outlook Forums, held in Toronto and Vancouver in November, PKF Consulting went to the industry to determine their views on market and bottom line growth prospects for 2006.
On a national basis, 40% of industry participants believe that RevPAR growth will be somewhere between 2% and 5%. At the same time, about one quarter of the respondents expect RevPAR will be under 2% and another quarter believe it will grow between 5 and 10%. PKF Consulting projects RevPAR growth of 3.9% for 2006. Consequently, the industry is generally on par with our results. The PKF Consulting national forecast for year-end 2005 is 64% occupancy at an ADR of $119, with RevPAR at $76. Our 2006 Outlook is for 65% occupancy at an ADR of $122, with RevPAR at $79.
From the Industry's Perspective
2006 Market Outlook |
RevPAR Growth |
National |
West |
Central |
Atlantic |
Decline |
8% |
4% |
9% |
16% |
0-2% |
24% |
20% |
31% |
17% |
2-5% |
40% |
48% |
29% |
50% |
5-10% |
23% |
22% |
27% |
17% |
Greater than 10% |
5% |
6% |
4% |
0% |
PKF Outlook |
3.9% |
4.1% |
5.1% |
4.6% |
As far as Western Canada is concerned, PKF Consulting has projected RevPAR growth of 4.1%, and 48% of industry participants concur that growth will be between 2 and 5% with a further 28% expecting growth of more than 5%. In the first tier markets of Western Canada, US visitation is declining, which will have a major impact on volume and ADR. The lag in convention demand will also put pressure on ADR. Second tier markets will experience an impact due to Strata and Recreational Real Estate Rental Pools. Finally, the resource industry is building camps to control ADR, yet resource requirements are displacing tourism capacity in third tier markets.
Central Canada will experience a 5.1% RevPAR growth, according to PKF Consulting. This forecast is stronger than the industry’s expectations, with only 31% of industry participants expecting RevPAR growth exceeding 5%. Although occupancy levels are projected to decline in Toronto due in part to the increase in supply, from a RevPAR perspective, Central Canada will be the best performing market in the country. Travel is expected to rebound, thus demand is expected to increase while rates weaken slightly across the region.
In Atlantic Canada, we project 4.6% RevPAR growth, which 50% of the industry has confirmed. This growth rate represents a midpoint between market performance in Western and Central Canada. Nevertheless, 16% of industry participants in Atlantic Canada expect a decline in RevPAR. Performance in Halifax is particularly high at 70% occupancy, yet overall regional occupancy is projected to be 8 points lower. Investment and travel will have a significant impact on rates in this part of Canada in 2006.
With regards to the national bottom line, PKF’s Outlook is for a 5.3% increase in profitability next year. Thirty percent of the industry operators and owners are expecting profitability to increase between 2 and 5%, which is weaker than our forecasts, although 35% are expecting bottom line growth of over 5%. 2005 profitability should be in the range of $9,400 per room, and should recover to 2002 levels at $9,900 per room in 2006.
From the Industry's Perspective
2006 Bottom Line Outlook |
Bottom Line Growth |
National |
West |
Central |
Atlantic |
Decline |
9% |
9% |
10% |
8% |
0-2% |
26% |
22% |
33% |
17% |
2-5% |
30% |
30% |
24% |
50% |
5-10% |
23% |
26% |
20% |
25% |
Greater than 10% |
12% |
13% |
13% |
0% |
PKF Outlook |
5.3% |
6.2% |
5.2% |
6.4% |
The industry’s view for growth in Western Canada is slightly higher than that of National profitability, with 39% of participants expecting bottom line growth of over 5%. PKF’s outlook sees a much stronger increase in profitability at 6.2%. This kind of growth will bring bottom line profitability to $10,300 per room, approximately 8% ahead of 2002 levels in Western Canada and 4% beyond national levels for 2002.
PKF’s outlook for Central Canada is a little less optimistic than that for Western Canada at 5.2% profit growth. The industry is even more pessimistic for Central Canada, with 33% of respondents forecasting under a 5% or more increase in profitability and 10% expecting a decline in the bottom line. This region was the hardest hit in 2003, with industry profits falling by 35%. Consequently, the current outlook for 2006 would bring profitability just below 2002 levels at $10,100 per room.
In Atlantic Canada, the industry’s outlook is weaker, with only 25% expecting profit growth of more than 5%, with none of the respondents expecting growth of more than 10% in net income. PKF ‘s outlook is much stronger at 6.4%, which is in fact the highest expected increase in profitability for the country, but at only $8,300 per room is still well below the national average.
PKF Consulting remains committed to the accommodation industry of Canada and the many initiatives that continue at local, regional and national levels, and we thank everyone who participated in this year’s Outlook Survey. For full details of the 2005-2006 Canadian Accommodation Outlook Forum, and to download a copy of the associated presentation or other publications, please visit our website at www.pkfcanada.com.
Brian Stanford, Director
PKF Consulting Toronto
