No rooms at the inns: Vancouver's hotel shortage could hurt local economy – Vancouver Sun

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For at least 15 years, Vancouver city councils of various political persuasions have talked about a shortage of hotel rooms hurting the local economy.

Despite successive councils adopting policies to fix the situation, Vancouver’s hotel inventory has instead shrunk significantly, even as the city and its tourism industry have grown.

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Vancouver’s limited hotel capacity produces several ripple effects, and has been repeatedly flagged as a problem by tourism businesses.

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Today, some tourism business leaders are cautiously optimistic.

Vancouver’s council says the issue is a top priority. And an opportunity has arisen, in part, from the very thing that decimated the tourism sector a couple of years ago: the COVID-19 pandemic.

Hotel rooms are needed for leisure tourists, people travelling for business and conventions, and for cultural and athletic events of all sizes. In the next three years, Vancouver will host the Invictus Games, the Grey Cup, the Laver Cup international tennis tournament, the 90th anniversary of the first international Alcoholics Anonymous convention, and part of the single largest sports event in the world, the FIFA World Cup soccer tournament.

Destination Vancouver, the organization that markets the city to tourists and conventions, released a report this year showing the number of hotel rooms in Vancouver dropped 12.8 per cent in the past two decades, from 15,242 rooms in 2002 to 13,290 last year.

“We’ve been going on a downward trajectory in terms of room stock,” said Destination Vancouver CEO Royce Chwin. “We went in the opposite direction from what we want.”

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Vancouver lost hundreds of rooms during the pandemic as federal, provincial and municipal governments bought several empty tourist hotels and converted them into social housing. There was — and still is — a dire need for those social housing units, which remain full.

But the purchases removed a significant portion of Vancouver’s more modest, budget-friendly tourist accommodations. Much of the remaining hotel stock tends to be higher-end and boutique options.

Vancouver hotel rooms were the most expensive of all Canadian cities in Avison Young’s 2022 report, with an average daily rate of $234. Figures from STR, an analytics firm that tracks North America’s hospitality industry, put Vancouver’s hotel occupancy rate for the first half of this year — even before the July-August rush — at 76 per cent, well ahead of Toronto at 67 per cent, Seattle at 63 and San Francisco at 59.

Destination Vancouver’s report, by accounting firm MNP, predicts that demand for Vancouver hotel rooms will exceed supply by 2026, leading to billions in forgone revenue over the next 25 years as visitors simply go elsewhere. This would affect tax revenues, the gross domestic product, and employment, the report says.

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Destination Vancouver, previously known as Tourism Vancouver, has been raising alarms about this issue for years. But, Chwin says, a worsening hotel shortage poses a threat far beyond the tourism industry.

A major part of the appeal of a city like Vancouver is enjoying a variety of local independent businesses, arts and cultural institutions and events.

But visitors are crucial to keeping many beloved Vancouver businesses open — and employing — locals, Chwin said.

“Those restaurants we love, the retail shops, the attractions people love to go to — the local embedded population is not enough to support those different sizes of businesses.”

To make his point, Chwin says we should consider how many shops, restaurants and attractions that were well loved by locals but closed down after the outbreak of COVID-19 stopped all tourism. Even with unprecedented levels of government support, he said, many Vancouver businesses could not survive on local support alone.

Statistics Canada figures has shown that on average, a visitor to Vancouver spends more than twice each day on local shops, restaurants and services than a resident.

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“Nobody’s going to come to a city with nothing going on,” Chwin says.

Acquiring property is only the first step. Adding houses is more difficult. And building hotels is even harder.

There are several reasons why the local developers cannot build the hotels Vancouver needs, says Cynthia Jagger, a principal with the Vancouver real estate firm Goodman Commercial.

The cost of labour, materials and interest have risen considerably. And obtaining financing for a new hotel is more complex than condo or rental residential projects, Jagger said.

Only a small fraction of Vancouver’s land is zoned for hotels, she added. In those areas, “The highest and best use will typically be another use or a combination of uses.”

This means that when developers do build hotels, it’s typically combined with other uses — such as condos or offices. So even with large towers, the number of hotel rooms would be on the low side.

Now some local players are seeing a new way to create hotels, as  lasting societal changes brought by the pandemic are creating an opportunity.

With so many people working remotely, at least part-time, demand for office space has not recovered to pre-pandemic levels. Some observers believe North America’s downtown business districts will

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 be what they once were.

NAI Commercial Real Estate recently reported that a notable increase in un-renewed leases continued to push Vancouver’s office vacancy rates higher through the second quarter of 2022.: “This trend underscores a departure from ‘normal,’ as employees who would return to the office have likely already done so.”

Some downtown property owners have spotted an opportunity in this market. One of them, Amacon, purchased a downtown Vancouver office building last year with plans to convert it to a hotel.

The medical office building on Burrard was largely vacant when the sale closed, said Amacon’s vice-president of executive operations Stepan Vdovine, and “an interesting opportunity presented itself here.”

Amacon, a major local developer, also owns the Loden Hotel downtown, which opened in 2008, and is building a 29-storey mixed hotel-and-condo tower on Beatty Street across from B.C. Place.

Building a hotel from the ground up could take five years or more between permitting and construction, Vdovine said. But the renovation of the Burrard office building could be significantly quicker, he said, and might be completed in time for the FIFA World Cup in June 2026.

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The project has been helped along by a supportive city staff and council, Vdovine said.

“In this particular instance, it’s been a pleasure to work with the city,” Vdovine said, adding that the hotel capacity issue “hasn’t really been a priority for the city until recently, and this new council has signalled they want to move this along.”

Amacon’s Burrard project is not Vancouver’s only commercial-to-hotel conversion.

A mixed-use tower at Smithe and Cambie, which had floors of unleased office space sit vacant for two years after completion, will soon be converted into hotel rooms, Daily Hive reported in June.

Vdovine and Chwin both expect there could be other examples of office-to-hotel conversions coming soon.

Hotel shortages were on the radar of city councils from before the 2010 Olympics. In 2007, an NPA-majority council adopted a core plan, which, among other things, directed city staff to report on adding new hotels in and near the downtown core and along Broadway.

The city credits that plan with the development of some new hotels, but it wasn’t enough to make up for the loss of others. Over the next decade, even after the Olympics boosted Vancouver’s global profile and the tourism industry kept growing, the city’s numbers show the hotel inventory shrank by 1,105 rooms from 2008 to 2018.

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In 2018, under a Vision Vancouver-majority council, the city adopted an interim hotel development policy, seeking to boost hotel development and moderate the loss of rooms.

While that policy reaffirmed “the importance of hotels and related meeting facilities to the city’s economy,” it did not provide incentives for the development of hotels or enable rezonings.

More recently, the city’s area plan for Broadway, approved last year, and the Granville Entertainment District plan underway now, both look to boost hotel development.

Jagger, the commercial real estate broker, suggests one way the city could assist with the shortage would be adding density at no cost to encourage builders to include hotel rooms in new buildings.

ABC Coun. Sarah Kirby-Yung says city policies approved in recent years did not go far enough in addressing the hotel room shortage.

“The name sort of says it all: it was intended to be interim,” she said of the 2018 interim hotel development policy. “We need a robust policy with strategies behind it.”

Kirby-Yung, who worked in the hotel sector and for Tourism Vancouver before entering politics, has drafted a motion that she plans to introduce next month at the first council meeting following the summer break.

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It would direct city staff to consider setting targets for hotel development, as city hall does for housing, and produce policy ideas to encourage hotel construction.

Kirby-Yung, other politicians, and municipal officials have also pointed to another potential side-effect: A constrained hotel supply could increase demand for short-term rentals, through platforms like Airbnb, which in turn adds more pressure to an already extremely tight residential rental market.

Companies offering short-term rentals argue that cities like Vancouver have bylaws that prevent their services from hurting the long-term housing market.

Short-term home rentals have been around for more than a decade now, but debate around the subject has ramped up in recent months, and is expected to carry into B.C.’s fall legislative session.

Kirby-Yung’s colleague, Coun. Lenny Zhou, has been raising alarms over short-term rentals recently. Zhou cited “the scarcity of hotel spaces,” among other things, in a public statement this month saying that non-compliant short-term rentals in Vancouver could be taking thousands of badly needed long-term rental homes off the market.

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Nathan Rotman, Airbnb’s regional lead for Canada, disputes that their platform has an impact on Vancouver’s long-term rental market. That’s because, he says, the city’s bylaws don’t allow short-term rentals that could otherwise be full-time homes, and “Vancouver has all the tools it needs to enforce its bylaw.”

In addition, Rotman says, Airbnb provides benefits for Vancouver’s economy by meeting some of the increased demand for tourist accommodation, which means visitors still come to Vancouver and spend their money here.

The subject could be coming to B.C.’s legislature soon. Housing Minister Ravi Kahlon recently told Postmedia News that the province expects to introduce legislation this fall to address concerns around short-term rentals.

dfumano@postmedia.com

twitter.com/fumano

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