YYZ has seen an increase in air capacity lately. A number of airlines are offering new routes or have added more flights to existing routes. So far in 2017, Air Canada has launched new international service between Toronto and Mumbai, Berlin, Memphis, San Antonio, and Savannah. In the summer of 2017, WestJet increased the frequency of flights on its routes from Toronto to Orlando, Los Angeles, Las Vegas, Montreal, and Moncton, respectively.
Source: Toronto Pearson International Airport
- For the past 12 years, the three-terminal airport has been undergoing a $4.4-billion CAD redevelopment program in order to help the airport meet the future air-transportation needs of the Greater Toronto Area. The airport will be capable of accommodating up to 65 million passengers a year by 2033. The Terminal 3 Enhancement Project, which involves improved retail, energy-efficiency initiatives, and new security screening in advance of United States Customs and Immigration Processing, is underway and scheduled for completion this year. In 2016, the capital spending on airport infrastructure amounted to more than $128 million.
- In early 2016, the Greater Toronto Airports Authority (GTAA) announced plans to develop an $11.2-billion regional transit hub to connect the airport area with key employment and residential areas throughout the Greater Golden Horseshoe. The proposed transit centre is to be located on 68 hectares of GTAA land across Airport Road from Terminals 1 and 3. A number of transit lines, such as trains, light-rail cars, and bus lines, would all circulate through the hub. A new mixed-use commercial area that will include office, retail, hotel, and other commercial space will be included in the development. In August 2017, the GTAA launched a Request For Proposal to procure design consulting services for the concept development of the regional transit centre. The target completion date for the project is 2027.
- The new Union Pearson (UP) Express LRT line was launched in June 2015 and is a key infrastructure enhancement that better integrates the airport with Downtown Toronto. As traffic between Downtown Toronto and the airport is expected to double over the next ten years, the rail service will become essential to the efficiency of Toronto’s transportation infrastructure. In addition, the Eglinton Crosstown LRT is expected to connect to the UP Express line upon completion in 2021, enhancing the accessibility between the airport and the northern Toronto area. The impact of the UP Express LRT on the YYZ hotel market has been generally positive, especially since the increasing rates at downtown hotels have been encouraging customers to stay in the airport area. Hotels that are farther away from the UP Express train station have yet to see any direct benefit aside from a small amount of overflow demand from hotels that are close to the train station, such as the Sheraton Gateway Toronto Airport and the Alt Hotel Toronto Airport, during periods of compression.
- In April 2017, Woodbine Entertainment Group (WEG) unveiled the completed master plan for the Woodbine Racetrack lands. Woodbine’s privately owned 684-acre site will be transformed in the years to come into “a city within a within a city,” creating a new urban heart for northwest Toronto. The vision would have Woodbine remain the ultimate destination for horse racing and gaming while adding new and expanded entertainment and cultural offerings, including dining, hotel, shopping, office space, post-secondary education, recreation, and health and wellness amenities, along with options for urban residential living. A new concert venue with the ability to accommodate as many as 5,000 spectators could also be built next to the racetrack. The first phase of development includes an expanded gaming district complete with integrated entertainment, hospitality, and related amenities. The first phase will attract approximately 12 to 15 million people per year, more than double the current number of visitors. In August 2017, the Ontario Lottery and Gaming Corporation announced the chosen operator for the new full-fledged casino, a consortium formed by the Great Canadian Gaming Corporation and Brookfield Business Partners. Woodbine is hoping to break ground on the project by next fall. At the end of September 2017, the City of Toronto still had the applications for rezoning and subdivision under review.
Hotel Market Supply
Largest Portion of Branded Rooms in the Country = Upper-Midscale Class
Hotel Market Performance and Forecast
The correlation between the amount of passenger traffic and the demand for airport hotels is apparent. With the growth in passenger traffic at YYZ, demand for the hotels on the Airport Strip has likewise increased. The Hotel Demand to Passenger Traffic Ratio (calculated by Number of Hotel Room Nights/Passenger Count) can be used to evaluate the trend at airport lodging markets as it measures the percentage of airport pessengers that are captured by the airport hotels. For the 10-year period from 2005 to 2014, the Hotel Demand to Passenger Traffic Ratio for the Toronto Airport Strip hovered between 4.0% to 4.4%. The ratio dropped below 4.0% in 2016, and it is expected to decrease further by the end of 2017. The decrease can be partly attributed to the fact that hotels on the strip are not able to fully accommodate the surge in demand, resulting in unaccomodated demand which must be displaced to neighbouring hotel markets. Unaccommodated demand in the Toronto Airport market is high on weekdays, as a result of strong commercial demand, and on weekends in the summer, given the high leisure demand. The decrease in the Hotel Demand to Passenger Traffic Ratio is also a result of the hotels on the strip taking the initiative to turn away some low-rated business, which prevented additional demand growth. This strategy aims to increase hotel ADR and thus bottom-line performance.
Source: STR, HVS
Jingjianxiong (Charlie) Shi is a Director, based in Toronto. Upon completion of a Master of Business Administration degree from Ryerson University and a Master of Science Degree from University of Houston, Charlie joined HVS Toronto and has worked on over 200 consulting and valuation assignments across Central and Eastern Canada related to existing and proposed hotels. Charlie attained his AACI appraisal designation in Canada and also publishes annual outlook reports for various markets. Prior to joining HVS, he worked in various operational roles in the hospitality industry. He speaks both English and Chinese (Mandarin).