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Hotel Life Expectancy

CANADIAN LODGING OUTLOOK
March 2004 Year-to-Date


The Canadian Lodging Outlook is a joint monthly publication 
of Smith Travel Research and HVS International, 
Vancouver and Toronto, Canada
.
By: Stephen Rushmore,MAI, CHA, HVS International - New York

You're driving down a street and you notice two hotels. Both appear neat, clean and orderly. One has exterior corridors, a flat roof that reveals the air-conditioning fan units, an out-of-date Tudor-style brick exterior, a plain, square swimming pool, and a small guestroom converted to a fitness room. The other has interior corridors, a front desk providing entrance security, a mansard roof that conceals the air-conditioning equipment, art deco exterior decor, a free-form swimming pool with water falls and slide, and a well-designed health club. It shouldn't surprise you that the modern hotel captures more than its fair share of occupancy and operates at a higher Average Daily Rate than the older property.

Revenue loss stemming from out-of-date appearance and inferior facilities is functional obsolescence.  Hotel appraisers recognize that obsolescence reduces income potential and value.

The life cycle of most hotels is characterized by rapid growth in occupancy and net income during the first five to 10 years. Then a hotel stabilizes, and net income remains fairly level from eight to 15 years after opening.
 

"Hoteliers may be able to do something about functional
obsolescence. But external obsolescence -the social and economic context of a hotel - is beyond a hotelier's control."

After that, net income begins to decline as the property nears the end of its economic life and its income-generating capability decreases.

Studies show that a hotel's economic life averages about 40 years, but the standard deviation is, believe it or not, 20 years. That means the risk of hotel investing is related to not knowing whether the economic benefits will last up to 60 years or end in 20.

Various factors affect the economic life of a lodging facility. Functional obsolescence can be key to hotel value decline.

In the above example, it's likely that the first hotel is 15 years old and in its decline, while the second is brand-new. It's also possible that both hotels are 15 years old, but the second just underwent a major renovation.

Functional obsolescence is curable.  Most hotels have a continuous program of furniture replacement and decor updating to keep functional obsolescence in check during a facility's initial years. But the first hotel hasn't undergone the massive renovation generally required between the 15th and 20th years.

Thousands of older hotels are in the declining phase of their life cycles.  Those with food locations and sound structures are prime candidates for the type of massive overhaul that will add years to their life. Other will eventually lose their national affiliation, deteriorate in appearance and go out of business.

External obsolescence is a loss in income and value resulting from outside factors. Examples include population shifts and declining neighborhoods, changes in traffic patterns, economic adversity among local businesses and hotel room oversupply. Unlike functional obsolescence, external obsolescence is generally incurable because a hotel owner has no control over it.

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CANADIAN LODGING OUTLOOK
HVS INTERNATIONAL - CANADA
March 2004 Year-to-Date
March 2004
Year to Date
Number
of Rooms
Occupancy Rate 2004
Occupancy Rate 2003
Average Room Rate 2004
Average Room Rate 2003
RevPAR 2004
RevPAR 2003
Room Supply % Change
Room Demand % Change
Nova Scotia Area 1,414 44.2% 46.4% $69.55 $74.07 $30.74 $34.37 0.8% -4.0%
Halifax, NS 1,736 54.6% 57.7% $105.69 $105.73 $57.71 $61.01 0.0% -5.4%
Montreal, QC 14,569 52.5% 54.0% $110.24 $110.62 $57.88 $59.73 0.0% -2.6%
Quebec City, QC 3,741 49.5% 53.8% $111.17 $114.11 $55.03 $61.39 1.0% -7.1%
Quebec Area 3,339 49.1% 47.6% $84.37 $82.84 $41.43 $39.43 0.0% 3.0%
Toronto Downtown 12,135 57.5% 56.3% $137.76 $141.02 $79.21 $79.39 -2.9% -0.8%
Toronto North/East 6,838 49.8% 48.4% $107.74 $107.96 $53.65 $52.25 0.0% 2.9%
Toronto Airport/West 6,227 68.4% 67.6% $110.73 $109.65 $75.74 $74.12 -6.4% -5.3%
Ottawa, ON 7,147 56.1% 57.8% $124.09 $123.95 $69.61 $71.64 2.0% -0.8%
Ontario East 3,938 44.3% 44.1% $85.43 $84.34 $37.85 $37.19 0.1% 0.6%
Ontario Southwest 8,380 50.7% 51.3% $85.94 $85.72 $43.57 $43.97 2.2% 1.1%
Ontario North 5,720 45.1% 48.1% $74.47 $77.14 $33.59 $37.10 0.1% -6.2%
Niagara Falls, ON 7,670 34.6% 38.6% $92.82 $88.63 $32.12 $34.21 4.6% -6.2%
Ontario Central 8,041 49.9% 52.3% $98.19 $97.32 $49.00 $50.90 2.3% -2.4%
Winnipeg, MB 3,759 55.6% 51.1% $87.61 $88.28 $48.71 $45.11 0.0% 8.8%
Regina/Saskatoon, SK 3,819 57.2% 58.1% $90.57 $88.25 $51.81 $51.27 -0.1% -1.8%
Calgary, AB 5,170 54.6% 52.7% $113.85 $110.65 $62.16 $58.31 -1.1% 2.5%
Edmonton, AB 5,452 61.1% 59.5% $98.14 $96.50 $59.96 $57.42 1.6% 4.4%
Alberta Area 7,959 55.1% 54.5% $89.33 $86.56 $49.22 $47.18 2.1% 3.2%
Mountain Regions, AB 1,745 53.8% 55.6% $190.63 $172.91 $102.56 $96.14 0.2% -3.0%
Vancouver, BC 12,962 55.4% 50.7% $110.28 $108.31 $61.10 $54.91 0.3% 9.4%
British Columbia Area 8,444 43.5% 44.8% $115.00 $120.13 $50.03 $53.82 1.0% -1.8%
Victoria, BC 3,121 47.2% 47.2% $77.28 $76.19 $36.48 $35.96 0.3% 0.2%
Alberta 20,326 56.5% 55.5% $106.17 $104.36 $59.99 $57.92 1.3% 3.1%
Provinces
British Columbia 26,054 53.2% 50.9% $121.44 $123.88 $64.61 $63.05 0.8% 5.4%
Manitoba 4,145 55.2% 51.1% $86.29 $87.12 $47.63 $44.52 0.0% 8.0%
New Brunswick 2,928 50.8% 53.0% $88.94 $85.71 $45.18 $45.43 1.2% -3.0%
Newfoundland 1,521 54.0% 50.7% $102.19 $99.09 $55.18 $50.24 0.0% 6.4%
Nova Scotia 3,150 50.1% 52.7% $91.86 $93.35 $46.02 $49.20 0.5% -4.4%
Northwest Territories INS INS INS INS INS INS INS INS INS
Ontario 64,991 52.0% 53.2% $109.08 $109.64 $56.72 $58.33 0.4% -1.8%
Prince Edward Island 889 37.0% 34.1% $67.97 $63.06 $25.15 $21.50 0.0% 8.5%
Quebec 22,754 52.3% 53.4% $117.83 $117.89 $61.63 $62.95 0.2% -2.0%
Saskatchewan 5,176 52.5% 52.8% $85.12 $82.68 $44.69 $43.66 -0.1% -0.6%
Yukon Territory 181 INS INS INS INS INS INS INS INS
Canada 152,115 48.4% 48.9% $94.54 $94.71 $45.76 $46.31 0.5% -0.5%

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Contact:
Selina Lai
HVS International – Canada
2120 Queen St. East, Suite 202
Toronto, ON M42 1E2
(416) 686-2260, ext 21
(416) 686-2264 FAX
slai@hvsinternational.com
www.hvsinternational.com

Also See European Hotel Transactions 2003 - Country Analysis / Canadian Lodging Outlook - February 2004 Year-to-Date / April 2004
2003 an Unbelievably Strong Year for US Hotel Sales / Canadian Lodging Outlook - December 2003 Year-to-Date / February 2004
2003 Canadian Hotel Transaction Survey / Canadian Lodging Outlook / January 2004
2002 Canadian Hotel Transaction Survey / Canadian Lodging Outlook / Feb 2003
How To Get The Best Sales Price; Positioning Your Hotel for Sell / Stephen Rushmore / Canadian Lodging Outlook - July 2003 YTD / September 2003
Lodging Market Impact of Hosting Olympic Winter Games; Will Salt Lake City Experience Apply to Vancouver and Whistler? / Canadian Lodging Outlook - June 2003 YTD / August 2003
Year-to-date Occupancy through April is 50.4% for all of Canada / Canadian Lodging Outlook - April 2003 YTD / June 2003
SARS and Its Impact on Tourism in Toronto / Canadian Lodging Outlook - March 2003 YTD / May 2003
Hotel Values in Europe - Current Trends / Canadian Lodging Outlook - December 2002 Year-to-Date / Feb 2003
2002 Canadian Hotel Transaction Survey / Canadian Lodging Outlook / Feb 2003
Performance Clauses Essential In Hotel Management Contract / Stephen Rushmore / Canadian Lodging Outlook / Dec 2002
Separating the Hotel Looker From the Hotel Buyer / Stephen Rushmore / Canadian Lodging Outlook / Sept 2002
Making The Ideal Hotel Investment / Stephen Rushmore / Canadian Lodging Outlook / Aug 2002
Reporting In at Six Months..../ Canadian Lodging Outlook / July 2002
The Global Approach To Hotel Valuations / Canadian Lodging Outlook / June 2002
Hotel Insurance Premiums on the Rise? / Canadian Lodging Outlook / May 2002 
Hotel Development Cost Can Determine Feasibility / Canadian Lodging Outlook / May 2002 
Hotel Internet Distribution Channels / January 2002 Month-to-Date Results / Canadian Lodging Outlook / April 2002 
2001 Was a Great Year If You Were in Edmonton! / December 2001 Year-to-Date Results / Canadian Lodging Outlook / Feb 2002 
2001 Canadian Hotel Sales / Canadian Lodging Outlook / Jan 2002 
The Effect on Capitalization Rates and Discount Factors After September 11 / Canadian Lodging Outlook / Dec 2001 
So How Bad Was September for Canadian Hotels.. Pretty Bad! / Nov 2001
So How Bad Was September for Canadian Hotels.. Pretty Bad! / The Canadian Lodging Outlook / September 2001 
Have Hotel Values in Canada Declined Since September 11th? You Bet They Have / The Canadian Lodging Outlook / August 2001 
The Popularity of Boutique Hotels / The Canadian Lodging Outlook / July 2001 
Rising Energy Costs Cause Concern in the Lodging Industry / The Canadian Lodging Outlook / June 2001 
Niagara Falls: With Supply Comes Demand / The Canadian Lodging Outlook / May 2001 
Does Supply Generate Demand? / The Canadian Lodging Outlook / May 2001 
Optimism With a Hint of Caution, As Analysts Predict a Softer Year for the Canadian Hotel Industry / Mar 2001 
Limited-Service Growth in Canada - Where’s it Going? / The Canadian Lodging Outlook / January 2001 
HVS Canada in Review - Year End 2000 / The Canadian Lodging Outlook / March 2001 
Canadian Lodging Outlook / May 2000 Year to Date Statistics / HVS International - Canada / July 2000 
The Rule of Thumb Method...Does It Still Hold Weight? / Elaine Sahlins - HVS / Oct 2000
What’s Hot and What’s Not in Western Canadian Hotel Markets / Mar 2000


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