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Development Charges in the Hotel Industry

By Charles Suddaby, Vice President & Co-Leader, Hospitality & Gaming, Valuation & Advisory and Brian Flood, Vice President & Co-Leader, Hospitality & Gaming, Valuation & Advisory

Hotel development costs have increased significantly in the Greater Toronto Area (GTA) over the last few years. The price of land, scarcity of labour, and increasing development charges have all impacted the cost to construct. With booming development, cities have elected to rely on development charges to help fund infrastructure upgrades to roads, water, wastewater, and storm management systems. The pace of growth in the last few years has led to large increases in development charges in many municipalities, sometimes jeopardizing the viability of hotel development.

  • Development charges in the GTA are currently highest in Vaughan, with a 2019 hotel development charge rate of $397.34 per square meter of building area. Mississauga and Brampton follow with the second and third highest rates, at $355.52 and $336.80, respectively. Toronto is the fourth highest of the municipalities surveyed at $310.40 per square meter.
  • In the last three years, Markham has seen the greatest increase in development charges at a remarkable 161%. Toronto follows with an increase of 50%, and Vaughan and Oshawa both with an increase of 41%. Mississauga and Brampton saw the smallest increase at 6%.
  • Of note, however, are last year’s increases, with hotel development charges rising by 52%, 45%, and 20% for Vaughan, Toronto, and Oshawa, respectively.

So, what does this all mean as many hoteliers seek to add to their holdings by considering new hotel development? If we consider a ‘typical’ 125-unit, focused-service hotel, the gross building area is likely to be in the 80,000 to 100,000 square foot range. Development charges alone, based on the 2019 rates, would be approximately as follows for a 125-room, 90,000 square foot hotel:

Location Development Charges  per Room
Toronto $2.6 million $21,000
Burlington $1.6 million $13,000
Mississauga $3.0 million $24,000
Oakville $2.0 million $16,000
Brampton $2.8 million $23,000
Vaughan $3.3 million $27,000
Markham $2.4 million $19,000
Oshawa $2.5 million $20,000

Land prices across the GTA have been escalating quickly while construction costs are reportedly increasing at about 10% to 15%, annually. The data above indicates development charges are increasing even more rapidly. Hoteliers seeking new opportunities need to be careful in their site selection, and, perhaps more importantly, aware of the length of time involved in the approval process as the final costs may increase over time from those first contemplated.

charles-suddaby-hospitality-appraiserCharles Suddaby has provided advisory and valuation services to the hospitality industry for 30 years and currently leads the Hospitality & Gaming Group at Cushman & Wakefield in Canada. His consulting practice includes market and feasibility studies, valuations and appraisals, development strategies, operational reviews, asset management, litigation support and other services associated with the tourism and hospitality industries.

brian-flood-hospitality-appraiserBrian Flood has provided advisory and valuation services to the hospitality industry for 30 years and leads the Hospitality & Gaming Group at Cushman & Wakefield in Canada. His consulting practice includes market and feasibility studies, appraisals, development strategies, litigation support, and other services associated with the tourism and hospitality industries.

 

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