According to CanaData, hotel construction starts in Canada are ahead by 100% in both square footage and dollar terms through April of 2008 versus the same period in 2007. This large percentage increase is deceptive, however, in that it is all based in Ontario and is due to only a few large projects. In the United States, the expansion in the hospitality sector has been larger and more broadly based. Furthermore, it is becoming clear that hotel construction in Canada should not be geared towards any expected influx of visitors from across the border.

There are a couple of key components to international travel for Canadians. The major element is two-way traffic with the United States. This is comprised of same-day trips and overnight stays. Both involve shopping and entertainment and possibly a conference component, depending on whether the travel is tourism or business-related. However, overnight travel has more significant implications for the accommodation industry. With respect to countries other than the U.S., travel in both directions is overnight by necessity.

For Canada’s construction industry, it is travel to this nation that is of primary importance in terms of the investment dollars that might be spent. However, travel by Canadians outside the country also tells an interesting story and some key trends will be outlined further along.

Statistics Canada reports that same-day travel to Canada from the United States has fallen by 41% over the last two years. The explanations are not hard to find: (1) the increase in value of the loonie versus the greenback; (2) the high price of gasoline for motor transport or fuel surcharges in the case of airline travel; (3) the unappealing prospect of border-crossing delays due to security precautions; (4) the requirement of a passport or other special identification papers for re-entry into the U.S.; and (4) the slowdown in the U.S. economy generally.

Travel to Canada from nations other than the U.S. increased for the fourth straight year in 2007. This was after a period of significant weakness in 2003, when the SARS scare (severe acute respiratory syndrome) was in full bloom. The United Kingdom remains Canada’s major source of foreign visitors beyond American tourists, business associates, friends and relatives.

However, the net effect of the loss of U.S. day trippers has been that the total number of visits by foreigners in March 2008 was the lowest since record-keeping began in 1972. By the way, New York, Michigan and Washington remain the top originating states for U.S. visitors to Canada, although travel from all three is down in the latest period.

Moving in the opposite direction, same day trips by Canadians to the U.S. were up dramatically in the second half of last year. Some of this was due to shopping excursions to take advantage of the climb in value of the Canadian dollar versus the U.S. dollar. This surge has abated in the first quarter of this year, as parity between the two currencies has forced Canadian retailers to scale back some of their prices to remain competitive.

The total number of overnight trips by Canadians to the U.S. in 2007 was 17.8 million (+11.6% year over year), the highest level since 1992. Canadians made the most overnight trips to New York, followed by Florida, Washington (the state), Michigan, California, Nevada and Maine. However, dollar spending was by far the highest in Florida, due to winter sojourns by “snow birds”, with California and New York next in line.

The total number of Canadian visits to the U.S. − 85% of total foreign visits, both “day” and “overnight” − in the past six months has been the highest in ten years, dating back to 1998. Overnight plane trips to the U.S. set a new record in March for the fourth consecutive month.

March also saw a new record high for the number of Canadian visits to countries other than the United States. The total number of foreign overnight trips by Canadians in 2007 was 25.2 million, with the U.S. accounting for 71% of them. The other 29%, in order, were to Mexico, the United Kingdom, France, Cuba and the Dominic Republic.

A few final comments are warranted. Travel by car made up almost 60% of all overnight trips to the U.S. in 2007. The rise in value of the loonie is giving residents in Canada an incentive to travel to the U.S. with one hand, but the big increase in the price of gasoline is taking it away with the other.

The high cost of traveling by car (and air) is going to make this summer’s driving season more “stay at home” than usual. It will be a time to get to know the attractions in one’s own local area better, by way of short day trips.

As for hotel and motel construction in Canada, it seems that owner-builders are taking the right approach in their investment plans. The newest projects hedge their bets, with substantial residential components, or hybrid time-sharing components, being included along with new hotel rooms.

Alex Carrick

Find Canadian construction-related economic articles in Canadian Construction Market News and in the Economic Outlook section of Daily Commercial News.

» View all comments (0 total comments)

Post Your Own Comments

» Not a member? Register now to become one. Otherwise, login to post your comments on this article.

11/19 - Starts remain low in CanaData’s latest forecasts, but there are signs of a pickup in optimism

11/11 - CanaData’s October Construction Starts and Remembering Planned Obsolescence with Some Fondness

11/04 - It’s a World of Opportunities as Economic Thoughts Turn to Recovery

10/28 - Housing markets in Canada and U.S. tell complex stories

10/22 - The Current Grace Period for Construction Costs will Expire within Six Months

» Back to Alex's Blog