The new supply in the Canadian construction pipeline is at a recordhigh level. According to The Dodge Construction Pipeline for Canada, published by Smith Travel Research, 277 new construction projects were in the Canadian pipeline at the end of 2006. This reflects a remarkable 65% increase from year-end of 2005, when 168 projects were in the pipeline. The pipeline contained 24,923 new guestrooms at the end of 2006, up 55% from the end of 2005. The Canadian hotel market has never before sustained such supply growth.

Mid-scale properties without food and beverage operations have seen the most dramatic growth. At year-end 2006, 69 such properties were in the pipeline as opposed to only 8 at year-end 2005. Midscale properties with food and beverage operations and economy brands saw the next highest levels of growth. There were 12 mid-scale properties with food and beverage operations in the pipeline at the end of 2006, up from 3 at the end of 2005, and there were 49 economy brand properties in the pipeline at the end of 2006, up from 13 at the end of 2005. 

How long the building boom will endure is uncertain. Large supply increases can put downward pressure on RevPAR growth until the new supply is absorbed.

When RevPAR growth stagnates, developers look for new markets in which to build, which creates increased construction activity in secondary and tertiary markets. When these secondary and tertiary markets also become saturated with new supply, suppressing RevPAR growth, the number of projects in the pipeline begins to decline.

At the end of 2006, there were actually fewer projects in the pre-planning stage than there were at the end of 2005. The number of projects in the pre-planning stage was down 3.0%, and the number of guestrooms in the pre-planning stage was down 5.0%. This drop may indicate that construction has peaked, but it does not mean that the Canadian hotel market is saturated with new supply.

The number of projects in the pre-planning stage may be down slightly, but RevPAR growth is at an all time high. In Western Canada, for example, demand is growing at a faster rate than the guestroom inventory, so the surge in new supply has had no negative impact on average room rates or RevPAR. In this environment, developers will continue to find opportunities to build new hotels.

Given this record-breaking RevPAR growth and the favourable lending environment at present, developers will go on building new lodging facilities in Canada until market conditions change or high construction costs make these projects unfeasible.