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Toronto: how rent restrictions will help hoteliers

The proliferation of online services that allow you to rent housing quickly and without intermediaries quarreled residents of large cities with the authorities and hoteliers. Now many cities in Europe and North America impose laws restricting Airbnb, HomeAway, VRBO, and the like.

The example of Barcelona, ​​Berlin, Vancouver and San Francisco is going to follow Toronto. In early December 2017, the city authorities adopted a package of regulatory measures, according to which, from June 2018, it would be forbidden to rent apartments and houses in their entirety for less than 28 days. Rooms in the facilities where the owner himself lives can be rented no longer than 180 days a year.

Similar restrictions have been introduced in many cities of the world:

in Barcelona, ​​in order to rent an apartment for short-term rent, you need to have a tourist license, the issuance of which has been suspended since June 2014;
in Berlin since May 2016 it is forbidden to rent apartments and houses entirely;
in Vancouver, from April 2018, it will be allowed to rent only those objects where the owner himself resides, and only if he has a special license;
since February 2015 in San Francisco, the owner can rent an apartment for an unlimited amount of short-term rent only if he lives in it himself, otherwise the lease term should not exceed 90 days a year.
Today, Airbnb has more than 4 million registered ads in 191 countries of the world – according to the Bisnow edition, this is more than the entire number of hotels in the five largest international hotel chains. The number of bookings through the service since 2008 has already exceeded 200 million.

In Toronto, according to Airdna, as of January 2018, there are 12.7 thousand offers on Airbnb, of which 64% are houses or apartments, which are rented entirely. According to HVS data for September 2017, there are about three times more hotel rooms in Toronto: 36.5 thousand.

Berlin example
If the market for short-term rental of private housing in Toronto is reduced, the hotel sector will benefit: the demand for hotels and alternative accommodation options (in particular, apart-hotels) will accelerate their growth.

A similar market reaction is clearly seen in the example of Berlin, where, from May 2016, for a short time, you can take only the housing in which the owner lives. The ensuing decrease in the number of ads on online platforms (according to AirDNA estimates, the number of ads on Airbnb decreased by almost 50%) was only partially offset by an increase in the number of hotel rooms. According to Colliers, in 2016 the number of places in hotels in Berlin increased by 1.7% compared with 2015, and the number of nights that tourists spend in the city increased by 2.7% over this period. As a result, hotel occupancy increased from 74% in 2015 to 77.1% in 2016.

Chance for investors
Toronto is the most visited city in Canada. According to Mastercard, from 2012 to 2016, the number of tourists from abroad who stay overnight in Toronto increased from 3.5 million to almost 5 million people, and, according to the company, their number will increase by another 6 in 2017 2%. The number of tourists from China over the past five years increased by 77% – in 2017, Toronto was visited by 321 thousand Chinese.

The demand for hotels in Ontario over the past few years has been growing faster than supply: for example, according to preliminary estimates by CBRE, in 2017 it increased by 2.5%, and supply – by 0.9%. According to analysts, since 2012 the average room rate per day (ADR) in Toronto has increased by 22% to $ 169, and the yield per room (RevPAR) – by 30% to $ 126. This shows that in the local market and without Airbnb control, demand outstrips supply.

It can be assumed that, by analogy with Berlin, occupancy rates in Toronto with the introduction of regulation will accelerate growth. According to HVS, it already exceeds 85%.

This will give hoteliers the opportunity to raise the average room rate faster and stronger, especially since it is lower in Toronto than in major US cities (Statista estimates for Q4 2016, ADR in New York is $ 389, in San Francisco – 320 Doll.).

For tourists, this will mean an increase in living expenses, for investors in the hotel segment of the commercial real estate market – an increase in revenues and profits.

If earlier investments in the Canadian hotel market experienced a boom (according to Colliers, in 2016 the volume of transactions increased by 70% to 4.1 billion dollars), then with the introduction of regulation this trend will only increase. Major players understand this now: for example, in the fall of 2017, the Brookfield Asset Management bought The Sheraton Center Hotel in downtown Toronto for $ 335 million – the largest single asset transaction in this sector in Canadian history.

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