'Stop building' hotels in Calgary, industry urges, as supply of rooms outstrips demand

You might have noticed all the new hotels popping up near Calgary's airport in the last few years or, more recently, the 36-storey Residence Inn by Marriott that opened in the Beltline or the two new hotels that opened in East Village.

All told, 2,600 new hotel rooms have been added to the city in the past three years, and 1,200 of those are less than a year old. 

But all that new construction is creating a problem: supply is outstripping demand and, as a result, some hotel operators are struggling to find enough guests.

"What we're trying to politely do is to tell the industry: stop building," said Greg Kwong with the commercial real estate firm CBRE.

"It's just not going to make sense for you to deliver a hotel in this environment," he said.

The most recent statistics for 2019 show the city's average hotel occupancy rate was 54.3 per cent from January to May, off nearly two percentage points from the same time the year before.

The decline will likely have affected profitability at many properties, according to Kwong.

The numbers for the busy summer season aren't yet available but overall, CBRE is forecasting a 62 per cent occupancy rate for Calgary this year.

Kwong says before oil prices tanked in 2014, occupancy rates in Calgary were usually around 70 to 72 per cent.

"The last three or four years have been pretty tough on the hotel business," he said.

The average daily room rate so far in 2019 is also off, slightly, to $138.14.

Another key number for the industry is the revenue per available room, which stands at $86.99 for the year, down by about $6 from 2018.

'We've built a lot of new hotels'

The Calgary Hotel Association says 2,600 new hotel rooms have been added to the city's inventory since 2016. Many of those are located near the airport, including the 247-room Westin and 127-room Hyatt Place.

"It's true, we've built a lot of new hotels," said Peggy Athans, the association's executive director.

Since late 2014, she said the hospitality industry has seen a decline in the number of business travellers and that's prompted a renewed push for conferences and all the delegates that come with them.

The hotel association collected $10 million last year through a marketing fee that is charged by Calgary hotel operators. The money is used to promote Calgary as a destination.

"In 2018 alone, we secured 53 conferences that will be held here in future years," Athans said. 

"We have a lot of supply but we also have, I think, what's in place to move us forward when the economy turns around."

In addition to all of the new hotel rooms the industry has to fill, Athans said it's also competing with a rapidly growing number of home rentals through popular sites such as Airbnb.

"We have probably, with the growing short-term rental market, 4,000 units in short-term rentals," she said. "So yeah, there is a lot of supply."

The association says there are currently 101 hotels in Calgary with a total of 15,470 rooms. Two new hotels under construction near the airport will add another 217 rooms next year.

Athans doesn't expect to see as much new hotel construction over the next little while.

"I think we are going to see it slow down in the short term."

4-star hotel delayed 

At least one major hotel project is being delayed in downtown Calgary.

The Dorian, originally set to open late next year, has had its planned opening date put off until early 2022, according to PBA Land and Development, the company behind the project.

It says the economic downturn was longer and deeper than previous ones and it wanted to make sure the recovery is sustainable and not merely a "blip."

"We are taking a long-term view for our product, and also using projections that contemplate a longer, slower recovery to the hospitality market," said Andrew Boblin, a senior vice president with the company.

Construction on the $100-million, 308-room hotel at 525 Fifth Avenue S.W. is now set to start this fall. 

As for Kwong's request for the industry to stop building, he says he'd like to see the city's occupancy rate remain at 70 per cent for at least a year before he would suggest more rooms could be added.

Bryan Labby is an enterprise reporter with CBC Calgary. If you have a good story idea or tip, you can reach him at [email protected] or on Twitter at @CBCBryan.