Carrie Russell on the hotel market's resilience

If you've been watching the commercial real estate landscape in Vancouver, you've probably noticed something interesting happening in the hospitality sector. While other markets grapple with uncertainty, Vancouver's hotel market is experiencing a perfect storm of conditions that are driving valuations to new heights, and the momentum shows no signs of slowing.

We recently sat down with Carrie Russell, Senior Managing Partner at HVS in Vancouver, to get the inside scoop on what's really happening in the city's hotel market. HVS literally wrote the book on hotel appraisals, so when Russell talks about valuation trends, it's worth paying attention. What she shared paints a fascinating picture of a market that's firing on all cylinders, but also facing some interesting challenges that every CRE professional should understand.

The perfect storm: Strong demand meets shrinking supply

Here's the headline: Vancouver's hotel market is experiencing something that every real estate investor dreams about—surging demand colliding with contracting supply. It's Economics 101, but the scale of what's happening is remarkable.

"The demand for accommodations in Vancouver is very strong," Russell explains. The city is pulling visitors from multiple sources: leisure tourists who want to experience one of the world's most beautiful cities, a robust corporate travel market, and healthy meeting and group travel. Over the past decade, Vancouver has solidified its reputation as a must-visit destination, and the numbers back it up.

But here's where it gets really interesting. While demand has been climbing, supply has actually been shrinking. Yes, you read that right. Over the last ten years, Vancouver hasn't just failed to add new hotel inventory—it's actually lost rooms. Hotels have been converted to alternative uses, a trend that accelerated during the pandemic but started even before COVID-19 hit.

The result? Occupancy rates are hitting record levels, and average room rates are climbing as the market experiences what Russell calls a "compression effect." When you can't add more rooms and everyone wants to visit, prices go up. It's that simple—and that powerful.

Why valuations are soaring

For investors and owners, this supply-demand imbalance is translating directly into higher valuations. But it's not just about occupancy and rates. Russell points to another critical factor: Vancouver's broader real estate market dynamics.

"Vancouver is a very desirable real estate market with some of the lowest cap rates in the country," she notes. When you combine strong operational performance with favourable real estate fundamentals, you get a valuation environment that's extremely attractive for hotel assets. This is the kind of market condition that makes lenders happy and investors eager.

The revenue story: Great news with a catch

Post-COVID revenue growth in Vancouver's hotel sector has been "very, very strong," according to Russell. The top-line story is undeniably positive—occupancies are up, rates are improving, and total revenue is climbing.

But here's the reality check that every sophisticated investor needs to hear: while the top line is growing, the bottom line isn't keeping pace percentage-wise. The culprit? Expense creep.

Labour costs are rising significantly, driven in part by union negotiations that have resulted in substantial wage increases. So while hotels are generating more revenue in absolute terms—and valuations are increasing accordingly—actual profitability margins are being squeezed. The aggregate numbers look good, but operators are working harder to maintain their net income percentages.

This is the kind of nuanced insight that separates casual observers from serious CRE professionals. Yes, the market is strong, but understanding the operational dynamics beneath the surface is crucial for making smart investment decisions.

Looking ahead: A golden window of opportunity

So what does the future hold? If you're a hotel owner or investor in Vancouver, Russell's outlook should make you smile—at least for the next several years.

By 2028, don't expect major changes to the competitive landscape. There simply aren't enough rooms under construction to materially impact the market dynamics. The near-term outlook is "extremely positive," with continued compression, occupancy growth, and rate increases expected to persist.

The real competition won't arrive until 2030 and beyond, when larger pipeline projects might finally come to fruition. That's four to seven years away—a lifetime in hospitality terms.

But here's Russell's strategic advice for current owners: now is the time to invest back into your properties. With a golden window of limited competition ahead, smart operators should be focused on retaining customers and solidifying market share before new supply eventually arrives. The properties that maintain their competitive edge through strategic capital improvements will be best positioned when the landscape eventually shifts.

What this means for CRE professionals

Whether you're an investor, lender, developer, or advisor, Vancouver's hotel market offers important lessons about supply dynamics, valuation drivers, and the importance of looking beyond surface-level metrics. The interplay between strong demand, constrained supply, and operational challenges creates both opportunities and complexities that require sophisticated analysis.

Markets like Vancouver's don't come along every day. Understanding what's driving performance—and what challenges lie beneath the positive headlines—is exactly the kind of insight that helps CRE professionals make better decisions and provide better advice to their clients.