Increased competitive pressure in the luxury hospitality markets of Toronto and Vancouver

In the past year alone, four luxury hotels – a new Four Seasons, the Shangri-La, the Trump Hotel and the Ritz-Carlton – have opened their doors and welcomed visitors to Canada’s largest city. All have room rates starting at about $500 per night, according to their websites. The most recent to open, the 259-room Four Seasons in the heart of the city’s posh Yorkville neighbourhood.

“I think Toronto has been underserviced from a luxury hotel standpoint for years,” says Bill Stone, executive vice-president with real estate consultancy CBRE Hotels. “There have been hotels like the Windsor Arms or Hazelton, but they weren’t enough to service demand.”

Toronto isn’t Canada’s only city to experience a recent luxury lodgings boom. Vancouver has seen the addition of three new high-end properties since 2009, including a Shangri-La hotel, the Fairmont Pacific Rim Hotel and the Rosewood Hotel Georgia.

But this flurry in five-star development begs a critical question: With the global economic recovery advancing at a snail’s pace and uncertainty hampering the spending plans of everyone from wealthier leisure travellers to major corporations, just how many high-priced hotel rooms can cities such as Toronto and Vancouver absorb?

David Larone, Toronto-based director of hospitality consulting firm PKF Consulting Inc., points to average daily rates rather than room count as the key metric to watch in predicting the potential success of this new round of development. He notes that in Toronto, the four new five-star properties have added slightly fewer than 1,000 rooms to the city’s approximately 17,000-room downtown hotel supply. That may seem like a lot until taking into account the closure of the old Four Seasons and the one-time celebrity magnet Sutton Place, hotels which combined housed more than 700 rooms. (Both of those properties are being converted into condos.) His conclusion: Toronto and Vancouver are not only able to absorb this new luxury supply, but they will continue to attract both the leisure and corporate clientele needed to sustain and grow the business over the long term.

Monique Rosszell, Toronto-based senior vice-president with HVS Global Hospitality Services, explains that marrying luxury condos with chic hotel brands is part of the new economic reality for high-end hotel developers.  “The hotels would not be feasible on their own,” she says. “The cost to build is too high, so obviously they’re subsidized by the condos. But from a day-to-day operational standpoint, the condos benefit from having the hotel.”  How? Beyond having a name such as Four Seasons or Ritz-Carlton attached to their property, condo owners often enjoy posh privileges such as room service, sharing of amenities such as pools and gyms, while also having access to the hotels’ high-end retail and restaurant components.

Adapted from The Globe and Mail

Rosewood Hotel Georgia, Vancouver