ST. JOHN'S, N.L. — St. John's has gained a lot of new hotel rooms within the last decade. According to Cathy Duke, CEO of Destination St. John's, a strong economy boosted by high oil prices made the city an attractive place for investors.
"I think when the economy was hot and oil prices were up, St. John's was really an area that a lot of investors were looking at because we had a very high demand for hotel rooms and they were getting a good average daily rate," Duke said.
But as those investments were being made, the price of oil took a tumble and the province's economic fortunes changed. According to Duke, that has really hurt the corporate market for hotels.
"There's always a real combination of business in your property," Duke explained. "You have your corporate business and then you have tourists as well and these conventions ... Unfortunately, they're really hurting as far as the corporate market being down."
The St. John's Convention Centre has witnessed a decline in the number of events it hosts, a fact alluded to in the City of St. John's rationale for boosting the annual operating grant to St. John's Sports and Entertainment by $1 million to $4.4 million in 2020.
At the end of 2018, there were approximately 3,130 rooms in licensed hotels, inns and bed and breakfasts throughout St. John's. The Hilton Garden Inn on New Gower Street opened earlier this month, becoming the 17th hotel in the city and bringing the total room count up to 3,284. A planned expansion of JAG on George Street West could add as many as 90 more rooms by 2022, and a 108-room hotel proposal for the site of the Atlantic Place parking garage is currently being mulled over by city council.
Occupancy rates
According to Duke, average occupancy rates for hotels in St. John's generally hovered in the mid-to-high 60-percentile range and even sometimes 70 per cent and above in recent years. In 2018, it reached 53.3 per cent. She cautioned this figure may be somewhat misleading, as there is increased capacity now, and hotel room sales from 2017 to 2018 experienced a growth of approximately two per cent.
"There was moderate growth in hotel rooms sold, but what happens when you have over-capacity, your rate drops," she said. "The revenues are just not there because the hotel rates are much lower than they used to be."
"The revenues are just not there because the hotel rates are much lower than they used to be." — Cathy Duke
John Steele is the president of Steele Hotels, which owns JAG and Capital Hotel on Kenmount Road.
"Part of it is we think we'll build a better mousetrap," Steele said regarding the JAG expansion, which would also involve a large multi-purpose space for live music performances and other events. "We think we'll have a good, unique product. We've had great success with (JAG) in the market, and there's a demand for it."
That said, Steele admits it would be inaccurate to suggest the St. John's hotel market is robust.
"Where we've noticed the big pressure in this market is in that mid-level market," he said, noting there's lot of new entrants competing for the same customers in the city.
Airbnb
Complicating matters further for St. John's hotels has been the rise of Airbnb accommodations. Duke's organization subscribes to a service called AirDNA that tracks Airbnb rentals and produces an estimate for the number of guestroom nights booked. For 2018, it showed 75,000 guestroom nights were sold at a value of $9.5 million in St, John's.
"None of that business is going to the hotels either," Duke said.
Steele said Airbnb is here to stay and there's little hotel operators can do about that, though he also firmly believes they should be regulated no differently from other accommodation businesses.
"The thing is, the horse is out of the barn when it comes to Airbnbs. You're not going to stop that, and I don't know if you should," he said. "But I think it should definitely be regulated and taxed like traditional hoteliers are. I think that would make it fair. But that does add a challenge, there's no doubt."
"...the horse is out of the barn when it comes to Airbnbs." — John Steele
On growth potential, Duke considers the tourism market an important audience for hotels to reach. However, access to the province has been an issue, particularly when it comes to the airport. Duke specifically cites the loss in recent years of direct flights from New York, Ireland, London and Toronto as troubling developments. As of the end of August, passenger traffic at St. John's International Airport was down 3.6 per cent compared to the same period in 2018, and passenger traffic on Marine Atlantic ferries in 2018-19 was the lowest since 2014-15 and down 6.3 per cent compared to the previous fiscal year.
"I think though we're still remaining very optimistic about the tourism industry," Duke said. "The more and more we look and research about who the traveler is and what they want, Newfoundland and Labrador is a tremendously good fit in terms of people who are very much looking for unique and authentic experiences. They really want to get off the beaten path. The trick with bringing visitors to Newfoundland and Labrador is that you often will hear people say, 'There are no accidental tourists in Newfoundland and Labrador.' Anyone who comes here plans to come. The province has got a wonderful marketing campaign, and I think the brand recognition is very strong, especially across Canada."
Tourism potential
Steele does believe there's potential for tourism to help the accommodations market grow, but like Duke, he sees a big need to address air access to St. John's.
"You've got to make it easier for people to get here," he said. "We have to address that, but if we can get that addressed, I think the tourism side will be good. There's a lot of people who can offer good products and experiences to people, and not just on the hotel side, but also for entertainment and things that they're going to do while they're here."
Entertainment is a big part of the planned JAG expansion, with the multi-purpose room offering a capacity of 1,400 for seated performances, up slightly from what the Holy Heart Theatre currently offers. Steele also expect it will used for conferences, presentations and other events.
"The hospitality industry thrives when there's a buzz in the community, and I think Newfoundland has improved on that over the years," he said. "That doesn't mean there isn't room for more improvement."
"I think we're looking at 2020 and 2021 being much stronger years than this year was." — Duke
For conventions, St. John's is consistently competing with other markets in Atlantic Canada. Duke said the Halifax Convention Centre can host larger events and provide substantial incentives to groups planning meetings and events. Halifax also has a lot more hotels within walking distance of the site (Duke said the Hilton Garden Inn and JAG expansion will help St. John's in this regard).
"That has proven to be a big competitor for conferences looking to come east, because to come to St. John's, you've got the additional time to get here, additional airfare cost and that kind of thing," she said. "We're working with our partners always to put together the best proposal we can and everybody sharpens their pencil in terms of pricing. I think we're looking at 2020 and 2021 being much stronger years than this year was."
Duke also firmly believes the city's corporate market will rebound, noting offshore oil exploration activity in the province remains strong and should eventually lead to economic spinoffs.
Twitter: @CBNAndrew
