feasibility study - element hotels

Student of Hospitality Management Program Algonquin College

1385 Woodroffe Avenue, K2G 1V8 Ottawa, Ontario, Canada

Tel: 613-869-7552 March 22, 2015 Moira McDonald Financial Department

Dear Potential Element by Westin Investors,

We have completed our market feasibility study regarding the Element by Westin on

Chaudière Island. Our data and research was used to forecast information from Ottawa

Tourism about potential events within the City of Ottawa, room supply and demand, as well

as additional information from Canada’s government website. While we believe our

research to be sound, and based on trusted sources, we cannot guarantee any of the

following:

The accuracy of estimates and data, since they are based on the view of the current

situation and the future is unknown and incidents may skew our estimates.

The anticipated level of management proficiency, as we cannot foresee the people

who will be working for you in the future, their level of expertise, as well as their

abilities to manage your property.

The volatility of the economy, the economy is the key role in this study, and it

depends on many different factors inside and outside Ottawa and Canada where we

are unable to control it.

The possible difficulties in negotiations with the National Capital Commission, the

City of Ottawa, the Aboriginal community; while our study is sound, there may be

resistance from any of the aforementioned groups, or others that may pose potential

issues.

This study was completed with the purpose of demonstrating the potential profit of the

proposed hotel under Element by Westin. This study may not be duplicated at any time, for any

purpose. If you would like to request more copies, please contact us. If you have any questions

or require our assistance on another project, we would be happy to hear from you once again. Sincerely,

TEAM 5 CONSULTING

Anne Roberts Benjamin Harley

Thu Giang Tran Branavi Kathir

Market Feasibility Study ELEMENT BY WESTIN

OTTAWA, ONTARIO

TEAM 5 CONSULTING

Benjamin Harley, Thu Giang Tran

Branavi Kathir, Anne Roberts

Ottawa, Ontario

April 7, 2015

Table of Contents

Executive Summary .............................................................................................................................. 1

Scope and Methods Used .................................................................................................................. 1

Site Conclusions ................................................................................................................................ 1

Economic Outlook Conclusions ........................................................................................................ 1

Supply and Demand Conclusions ..................................................................................................... 2

Financial Feasibility Conclusion: ...................................................................................................... 3

Final Recommendations .................................................................................................................... 3

Site Analysis ......................................................................................................................................... 4

Site Location ..................................................................................................................................... 4

Site Plan ............................................................................................................................................ 4

Site Zoning ........................................................................................................................................ 5

Site Parking ....................................................................................................................................... 6

Access and Visibility......................................................................................................................... 6

Proximity to Demand Generators ...................................................................................................... 6

Economic Outlook ................................................................................................................................ 8

Introduction ....................................................................................................................................... 8

United States’ Economic Environment ............................................................................................. 8

Canada’s Economic Environment ..................................................................................................... 9

Ontario’s Economic Environment ................................................................................................... 10

City of Ottawa’s Economy & Economic Environment ................................................................... 11

Supply and Demand ............................................................................................................................ 15

Existing Accommodation Supply ................................................................................................... 15

Competitive Supply Analysis .......................................................................................................... 15

Changes to Competitive Supply ...................................................................................................... 16

Historic Accommodation Demand .................................................................................................. 20

Historic and Projected Market Performance ................................................................................... 21

Projected Overall Market Occupancy and Proposed Hotel Occupancy .......................................... 22

Projected Average Daily Room Rates ............................................................................................. 23

Projected Market Performance Trends and Demands ..................................................................... 23

Historic Market Segmentation ........................................................................................................ 24

Projected Market Mix ..................................................................................................................... 25

Facility Recommendations .................................................................................................................. 27

Introduction ..................................................................................................................................... 27

Lobby & Reception Area ................................................................................................................ 27

Guest Units ...................................................................................................................................... 27

Food and Beverage Facilities .......................................................................................................... 28

Meeting Facilities ............................................................................................................................ 28

Recreational Facilities ..................................................................................................................... 28

Conclusions ..................................................................................................................................... 29

Financial Feasibility ............................................................................................................................ 30

Building Depreciation ..................................................................................................................... 32

References ........................................................................................................................................... 36

Appendix A ......................................................................................................................................... 40

Appendix B ......................................................................................................................................... 41

TEAM 5 CONSULTING Market Feasibility Study 1

Executive Summary

Scope and Methods Used

Team 5 was hired to investigate the feasibility of an Element by Westin hotel built on

Chaudière Island, finish the project assigned more effectively and efficiently with the

resources given from the organization, and to complete good business development skills and

a solid grounding in enterprise within a non-profit environment. Marketing consultants were

hired to spread the word about your business to the right people, at the right time, in the right

places. The main accomplishment of a consultation is to focus on the things that will add the

greatest amount of value to your project, in the shortest amount of time. Methods used to

complete this report included, but not limited to trend analysis, analysis of competitors,

analysis of supply and demand, and an on-site visit to Chaudière Island.

Site Conclusions

The location of the proposed site is ideal due to its central proximity between both

Downtown Ottawa and Downtown Gatineau. The planning of the site has been thorough from

the proposed hotel to the retail attractions and condominium developments to not only create a

hotel site but more of a community on Chaudière Island. The mixed-use zoning provides the

builders with the flexibility to use the land for commercial, residential and recreational

uses. While parking for block 201 may become scarce at higher occupancy levels, the parking

as a whole on Chaudière Island will be sufficient to accommodate the demand. Seeing as The

Isles are an environmentally conscious building development, and not all hotel patrons will be

using cars, the higher occupancy levels may not cause difficulty at all times. The Isles are

accessible by car, public transportation from both Ottawa and Gatineau, as well as bike and

pedestrian pathways. The site is near many attractions from both Ottawa and Gatineau that

will increase the demand for this proposal and should become an attraction itself, once

construction is complete. The Site Evaluation is deemed to be successful.

Economic Outlook Conclusions

The United States’ economy is currently on the rise. Canada’s economy had a slow

start in 2014 but has increased over time, and that trend is expected to continue. Ontario’s

economy appears to be on an increase as well. Ottawa’s economy is rising, with help from the

increase in GDP. While some economies are doing better than others, and other sectors may

be higher or lower than others, on average, the economies in the U.S., Canada, Ontario and

Ottawa have room for growth, and are all currently in the expansion phase of the business

cycle. Economics will not be a barrier in building on Chaudière Island.


Supply and Demand Conclusions

Currently, 38% of hotels in Ottawa are concentrated in the downtown core. While

there are many known hotel brands, 35% of the market has no brand affiliation. The five

product form competitors are a mix of branded, boutique and unbranded hotels, which have

similar amenities, some are close in proximity, are of similar rating and offer similar food and

beverage facilities. The room supply in Ottawa is on the decline, which is not a terrible

situation. Some hotels are being converted, some are being partially or wholly renovated, and

some are closing for good. Ottawa’s market is one with many different consumer needs that

the hotel industry as a whole is adjusting itself to accommodate those needs. These changes

will give Ottawa a different landscape in the coming years, but as supply stands now, the trend

of accommodation supply growth is on the decline, dropping roughly 1% each year. Hotels

will have less competition each year, which benefits hoteliers, provided the trend line proves

to be consistent.

The changes in accommodation supply and demand are fairly consistent in 2015

through to 2020. The demand is generally slightly lower than the supply, which makes it a

consumers market. The Element by Westin is a niche market hotel, therefore, the variance

between supply and demand should not be a large factor for the proposed hotel. Having

supply and demand being very close together makes for a healthy hotel market in Ottawa

which benefits both hoteliers and consumers. The year 2019 could be one of the struggles for

hotels in Ottawa due to the larger variance between supply and demand. Refer to Figure

1. Hotels will most likely be advertising heavily and coming out with newer promotions to

attract more guests to their properties.

(Figure 1: Changes in Supply and Demand 2015-2020)


Financial Feasibility Conclusion:

The proposed 140 room development on the Element Hotel by Westin is estimated to

generate approximately $6,789,146 in room revenue alone and approximately $48,494 per room.

Pricing was gathered from both The Element Hotel Development Cost and the rest was given to us

by one of the feasibility mentors, Michael Tarnowski. The money is based on current dollars from

2015. The debt to equity ratio was set at 80/20, requiring an investment of $3,419,600 and a loan

of $13,678,400. The loan will be paid over a 25 year period with 5.5% interest rate, creating a

payment of $1,019,716 annually. The financial analysis also includes a cash flow. The forecasted

cash flow shows a negative cash flow for the first year, however for years two to five, show signs

of a positive cash flow. This is due to the hotel coming fairly close to breaking even the third year

and finally fourth year. Net present value (NPV) was calculated using a 9% weighted average cost

of capital. The forecasted NPV is expected to have an operating gain for this investment at an

amount of $4,636,606, proving that this project with this debt to equity ratio should be undertaken.

During the financial analysis of the study, a review was done of the feasibility of the

Element by Westin if the debt to equity ratio changed from 80/20 to 65/35. This changes the NPV

to $2,815,595, however with the 80/20 debt to ratio split, the NPV for the investment was at a

value of $4,636,606, showing that our initial equity to liabilities plan of 80/20 of more value.

Final Recommendations

Moving forward, the next steps in developing the Element by Westin would be holding

discussions with the National Capital Commission, and the Aboriginal communities in the

surrounding area. The meetings with the Aboriginal People could concentrate on integrating the

culture and land within the development, without disrupting their culture. Meetings with the City

of Ottawa to ensure all permits and licenses are approved would be beneficial as well. Securing

the loan through investors is paramount and should be the first order of business.


Site Analysis

Site Location

According to the Master Plan, provided by Windmill Development (2014), the potential

site of the proposed hotel, Block 201, will be located on the Ottawa/Gatineau border on Chaudière

Island. It will be located north-west across from the Chaudière Falls Park. Block 201 will be

approximately 3,318 square meters (sq.m) in area (Daft Logic, 2014). The estimated height of

construction to the proposed site will be 15 floors high. The hotel footprint measures 2,000 sq.m,

with an additional tower to be 6 floors high. During a tour of the proposed site location there were

surrounding bodies of water, a nearby walkway, and a bike path that connects to Chaudière Island.

Included on Chaudière Island will be many different views of the Ottawa and Gatineau area.

Chaudière Island will be expanded upon to include areas for development of local attractions such

as retail space, condo developments, and parks.

Site Plan

Facilities that can be seen on the map, will be parks such as Chaudière Falls, West End

Park, and the commercial area, which was observed on January 21, 2014, will be located on the

south side of Chaudière Island. Refer to Figure 2 to review the site location map. Located on the

east side of Chaudière Island will be boutiques, retail shops, union square, condos, event space,

river recreation, East End Park, and a Parliament Terrace (Windmill Development Group, 2014).


(Source: Documents, n.d.).

Figure 2: Site Location Map

Site Zoning

The Isles development is zoned for a mixed-use development. Concerns raised during the

reapplication process revolved around First Nations and subsequent settlers who consider the area

to be sacred; other concerns included the future accessibility of the subject site, past contamination

to the environment due to industrial work, preservation of historical buildings, the failure of the

Canadian Federal Government to help in rehabilitating the land, and preserving the Isles (Planning

Committee Report 78, 2014). Those concerns seem to be serious, but with all the sustainable and

environmental designs and the care of surrounding areas in the research, any issues could

transform into potential strengths.


Site Parking

There are plans to construct 95 parking spaces in block 201. The demand for parking in

block 201 is estimated to be 120 parking spaces (Windmill Development Group, 2014). As per

the City of Ottawa bylaws, the requirements for parking are 0.75 parking spaces per unit in a

residential setting, 0.57 parking spaces per 1,000 square feet (sq. ft.) of community, restaurant or

retail space, 0.50 parking spaces per 1,000 (sq. ft.) of hotel space and 0.75 parking spaces per

1,000 (sq. ft.) of office space (Windmill Development Group, 2014). On-street parking spaces

will be dispersed throughout The Isles development, and amount to 135 spaces between Ottawa

and Gatineau, which have not been included in the 95 planned for block 201. Upon reviewing the

Isles as a whole, the total estimated parking spaces available will be 2,955, yet the demand is

estimated at just 2,805 (Windmill Development Group, 2014). Site parking may become scarce at

occupancy levels higher than 80%.

Access and Visibility

In the research of the potential development site of Chaudière Island, both Ottawa’s OC

Transpo and Gatineau's STO Public transportation systems will have stations located on

Chaudière Island (Windmill Development Group, 2014). There will be also commercial and

private businesses, sustainable buildings and other access points by car throughout the proposed

site. After transformations performed by Windmill Development Group, the island will become an

attraction itself in the future. The front of Block 201 will face Chaudière falls; guests that are

staying on the third floor and above will be able to see Parliament Hill and parts of Downtown

Gatineau depending on the location of their specific hotel room. Block 201 will also have easy

access to the main bridge and joining regular transportation (Windmill Development Group,

2014).

Proximity to Demand Generators

The island where the construction will take place is located between two cities, Ottawa,

Ontario, and Gatineau, Québec. Ottawa’s demand generators play a key role in generating the

potential guests for the proposed hotel. Ottawa is famous, not only because is it the capital of

Canada, but also due to its many tourist attractions. One of the closest attractions is the National

War Museum, located across the street from the proposed hotel site where future patrons could

walk to in roughly 7 minutes (Google, 2015). Parliament Hill is only 1.7 km away from

Chaudière Island (Google, 2015). Other closely located attractions to visit are the Canadian

Museum of Nature, only 3.4 km away, (Google, 2015) and the ByWard Market , which is within

walking distance from Parliament Hill and the Canadian Museum of Nature (Google, 2015).

Another demand generator is the historical site of the Rideau Canal; which is only 11 minutes

from the site by car or a short bike ride of 5.5 km (Google, 2015). In the summer, guests can take

boat tours or rent bikes on the Rideau Canal, and in the winter it becomes the world’s longest

skating rink. The Canadian Tire Center is located in Kanata, about a 22 minute drive away,

(Google, 2015) where hockey games, concerts and all kinds of other events take place on a daily

basis.


The city of Gatineau, with its contemporary structures can also contribute more attractions

and entertainment to potential tourists of this hotel. The Canadian Museum of History is within

just 2 km from the site (Google, 2015). The Gatineau Park is within 20 minutes (Google, 2015)

where people who are interested in hiking or mountain biking and sightseeing of the Mackenzie

King estate or Pink Lake can visit. Casino du Lac Leamy is within close proximity, (Google,

2015) and other activities in Gatineau such as the Fireworks Festival, and Jazz Festival,

continuously attract high volumes of patrons, which will produce demand for the proposed hotel

in the future.


Economic Outlook

Introduction

This section will determine the economic overview of the United States, Canada,

Ontario and Ottawa, and its feasibility to construct a hotel on Chaudière Island. Three factors

that give better understanding to the overall economic picture are the unemployment rate, real

gross domestic product (GDP) and tourism rates. The Conference Board of Canada (CBC) is

a reputable source of information on these topics, as is the United States Department of

Commerce, Bureau of Economic Analysis and the Canadian Tourism Commission. GDP is

defined as “the measure of economic performance based on the value of all final goods and

services produced in a country during a given period of time” (Sexton, Fortura, & Kovacs,

2013)

It is imperative that the economic picture of the aforementioned locations are included

in this study to determine feasibility so that potentials for revenues, profits and popularity can

be measured.

United States’ Economic Environment

According to the U.S. Department of Commerce, Bureau of Economic Analysis, over

the last five years, the GDP has increased year over year compared to the previous year

(Bureau of Economic Analysis, 2015). This indicates that in 2014 the economy in the US has

grown by 2.4% over 2013. Steady growth is important when examining the GDP because it

shows how healthy the economy is. In a growing economy, generally unemployment is lower

and there is an influx of consumers purchasing all kinds of goods and services which keeps

the economy in the expansion phase of the business cycle (Sexton, Fortura, & Kovacs, 2013).

The U.S. economy is expected to continue its recent acceleration into 2015, with the forecast

of 3.3%, which would be the strongest economic performance in over a decade. Consumer

spending, hiring and business investments are all part of a self-reinforcing cycle that will aid

the GDP into 2015 (Gampel, 2015). Refer to Table 1 for a snapshot of U.S change in GDP

percentage for 2010-2014.


The unemployment rate in the United States has seen a steady decrease for the last five

years, down 3.4% since 2010. When unemployment is low, it alludes that the economy is

strong, and citizens have more disposable income to spend on luxuries that may not have been

accessible in the past. Lower unemployment rates also benefit the economy due to the extra

spending by consumers which increases the GDP. Unemployment rates forecast a steady

decrease from 6.6% in 2015 through until 2020 where it is forecasted to be as low as 5.7%

(Statista, n.d.). Refer to Table 2 for a snapshot of unemployment rates for 2010-2014.

Canada relies heavily on the inbound U.S. traveller, as the U.S. leisure travel market

accounted for 63% of all inbound overnight travellers in 2012 (Canadian Tourism

Commission, n.d.). In 2012, 10.1 million overnight trips were taken in Canada by travellers

originating in the United States (Canadian Tourism Commission, n.d.). Tourism in the U.S.

has recovered from the unsteady economic times in 2008-2009, as international travel has

grown 3% since 2012 and is still increasing each year (Canadian Tourism Commission, 2013).

Canada’s share in American travels has unfortunately been on the decline for the past decade,

down from 28% of total international volume to 20% in 2012 (Canadian Tourism

Commission, 2013)

Canada’s Economic Environment

Canada’s economy had a slow start to the 2014 year, but is now gaining speed. The risks

still remain according to the CBC. Real GDP for 2013 was at 2%, 2014 forecasted GDP is coming

in at 2.2%, and a forecasted 2.6% GDP for 2015 and 2016 is shown in Table 3 (Stewart, 2015).


Over the past few years, exports have been one of the main sources of Canada’s downfall,

due to the largely dissipated U.S economic activity, with a slightly lower dollar and growing U.S.

economic activity, Canada’s export activity is expected to increase slightly, raising the future

GDP.

Unemployment is on a downward trend, forecasted to be 6.8% in 2015 from 2014’s

7%. Unemployment is expected to decrease further to 6.5%. While only a forecast, the chances

of unemployment rising may be due to the ever growing use of technology as some retailers, such

as Sears Canada, may change their business model to completely or partially online retail.

Canada’s weaker dollar is expected to aid tourism growth due to the competitiveness of

travel destinations for domestic and international tourists. Air travel within Canada is estimated to

increase 4.2%, and 5.9% from other markets around the world in 2015. Convention-related

activities are expected to increase within cities across Canada, which will also aid tourism growth.

Overnight tourism is estimated to increase by 2.7% in 2015, slow down to 2% in 2016, and

estimated to increase to 2.6% in 2017. Business travel is anticipated to increase to in 2015 by

2.8% from 2014’s 2.1%. Furthermore, the leisure travel rate is anticipated to increase to 3.0%

from the 2.1% it was in 2014. Travel from U.S. citizens is also forecasted to increase 3.5% as

opposed to of 2.1% in 2014, which shows positive signs from both domestic and international

travelers (Hermus, 2014). The Canadian economy has had a gradual increase, which is positive;

further research into the Ontario economy is needed before a conclusion can be developed.

Ontario’s Economic Environment

Ontario is “heading in the right direction” according to the CBC’s Provincial Outlook.

Ontario’s real GDP is expected to rise to 2.6% in 2015, an increase of 0.8% from 2014’s

1.8%. One-third of Ontario’s GDP comes from international exports, 80% in which are sent to the

United States. With the United States economy slowly increasing, it is a positive note for

Ontario’s GDP.

Ontario’s economy is slowly improving and the unemployment rate is expected to

decrease from 2014’s 7.2% to 6.6% in 2015 (Bernard, 2014). It is also estimated to decrease

further in 2016 to 6.3% (Hogue, 2014), as shown in Table 4.


Planning and possible development of a high-speed rail line in Ontario, The Corridor, it is

possible that job opportunities may increase, not only with the construction but from the finished

product itself. It may be an opportunity for tourism growth in Canada, which provides easy travel

for those coming from other countries, as well as residents of Canada (Hatako, n.d.).

Events such as the Pan American Games and the World Junior Hockey Championships

stimulate tourism travel; Ontario expects a rise of 1.5% in tourism between 2014 and 2015. The

acceleration of tourism in Ontario is expected to continue into 2016, at a reduced rate of 1.3%

between 2015 and 2016 (Hermus, 2014). Ontario is being compared to British Columbia in Table

5 due to its similar economic environment.

The Ontario economy is heading in the right direction. Based on the previous and

forecasted indicators, it would wise to further narrow down research, and evaluate Ottawa’s

economy before a conclusion is reached.

City of Ottawa’s Economy & Economic Environment

The Ottawa & Gatineau area is marked as the sixth largest city in Canada with a

population of more than 1.3 million. Together, the two cities had an increase in population of

1.4% in 2013, 0.11% lower than in 2013 at 2.5% and 2.6% in 2012. It is estimated that

population for 2014 will increase by 1% (Population of Census Metropolitan Areas, 2014).

The majority of the employees in Ottawa are working in the federal government. One

of largest obstacles in the government at the moment is budget cuts, reducing resources for

goods and services which makes development in the city more difficult. There have been

significant narrowing of different departments and projects within the government, which

means that many employees have been terminated who, not long ago, thought they worked in

the safest job environment and are now finding themselves looking for work. The construction

industry is most affected by this problem with a 12% loss in 2011. Refer to Table 6 for a

snapshot of employed construction workers 2010-2013. The recovering process in 2012 could

count for a 13% increase compared to the year before, but revert back to decreasing 4% in


2013. The positive review of the downsizing in the construction sector would be the potential

of finding enough employees for the construction of new projects in the works at the moment.

Other negative influences in the city over 2014’s forecasting has decreased by a significant

number. The residential and non-residential part of this sector in 2011 had been lowered and

that was the source of the problem, but in viewing all the other numbers of industrial and

commercial over the last 3 years, this sector is actually making a great effort to return to

higher employment rates after their big loss in 2011.

Ottawa’s GDP within the last 2 years has been growing even with the deficit from the

federal government sector. The minimal rate in 2013 (0.5%), marking the worst increase over the

past 5 years this past year was still estimated to stay in almost the same situation in 2013 with an

increase of only 0.7%. From 2015 and moving forward, there are positive views from economists

about the Ottawa market, the estimated increase of 1.8% for 2015 would show the development

expectation in this city to reach high level of improvement.

The effectiveness of the process in cutting budgets in the government also clearly shows

the unemployment rate of the city because 44% of those employed are office workers, and the

majority are of the government. In 2014, this rate had reached the highest compared to the last 2

years but still under the 7.2% and 7.0% of the Ontario and Canada rate, respectively. With those

numbers in mind, the estimated unemployment rate will drop to 6.2% in 2015 and 5.8% in 2016

which would solve the problem that this city confronted in 2014. Refer to Table 7 for a snapshot

of the primary economic indicators of 2012-2016.


Personal income per capita is another measurement to analyze the economics of Ottawa.

Ottawa’s population (after fighting over the job crisis caused by the government layoffs) was still

able to earn a good source of income. After the small rise in 2013 with only 1.4%, it increased to

3.4% in 2014. This explains why, with all the problems the city is going through, this is still an

attractive lane for immigrants (part of the increase in population come from immigration). Its

unique combination of French and English culture helps to show how stable and safe this

environment can be for the development.

To be able to understand the potential city better, Ottawa’s tourism sector should be taken

into account. In order to analyse it further, one should take a deep look at the hotel value index

and passengers who arrived and departed from the Ottawa International Airport in the past 3

years. Refer to Table 8 for the Hotel Value Index snapshot 2012-2014.

Ottawa’s 2014 Hotel Value Index shows a narrow demand in this market after the

larger drop in the hotel market in Canada in 2012. The market is in the process of recovering.

New demand in the hotel industry will become an important key role to analyze the proximity

of demand generators. The process of recovering is not completely finalized to the highest

index levels expected yet, but with all features of this project, and the sustainable key in the

design that have become the highest concern of the tourism factor now a days, they will all

turn into the success keys for the demand of this hotel (2014 Canadian Hotel Investment

Report, 2014).

There are many different ways to travel to Ottawa from other cities. The most

commonly used by international travellers are airlines. In looking at the arrivals and

departures of passengers from the Ottawa Macdonald Cartier International airport, Ottawa had

received more than 4.5 million passengers in 2013 and has estimated more than 4.6 million in

2014. In 2013, more than 770,000 international travelers had visited Ottawa, despite Canada’s

tougher policies to obtain a traveling visa (Gurzu, 2010), and less international knowledge of

Ottawa’s tourism compared to that of Toronto or Montreal. In 2014, the rate of international

tourists may have slightly decreased, however, tourism in general is still expected grow,

perhaps signaling towards inner Canada travel. The 4,616,448 total passengers marks

Ottawa’s airport as the 4th busiest international airport in Canada which shows the potential to

grow further over the next few years. Refer to Table 9 for a snapshot of the types of

passengers travelling through Ottawa Macdonald-Cartier International Airport.


Supply and Demand

Existing Accommodation Supply

According to Smith Travel Research (2014), there are seven product classes of hotels

currently open for business in the Ottawa area. Within the seven product classes, there are a

total of 9,669 rooms available each night in Ottawa as of November, 2014. These product

classes are Independent, which represents 35.4% of the market, Economy, which has 9.8%,

Midscale, occupying 3.7%, Upper Midscale holding 13.2%, Upscale grasping 16.6%, Upper

Upscale, consisting of 16.8% and Luxury Hotels achieving 4.4%. There are many different

brands available in Ottawa such as Fairmont, Westin, Sheraton and Hilton on the higher

product class end of the range, as well as Best Western, Holiday Inn, Ramada, Econolodge

and Travelodge on the economy end of the scale. With 35.4% of Ottawa’s hotel rooms being

without any brand affiliation, it is safe to assume that although brand may be a factor for some

travellers, it may not be a large factor. Ottawa’s hotels range in size from 12 to 429 rooms

and in general, the lower the number of rooms, the lower the price point and product class of

the hotel. While the hotel industry is available from Kanata to Orleans, it is concentrated in

the downtown Ottawa area, with 38% (Hotels.com, n.d.) of the hotels offered on hotels.com

being within 2 kilometers from the Rideau Centre, which is at the core of downtown Ottawa.

Competitive Supply Analysis

The five direct competitors chosen for the proposed hotel are Courtyard Marriott

Ottawa, Preferred ARC The Hotel, Hotel Indigo Ottawa Downtown, Hilton Garden Inn

Ottawa Airport and Les Suites. They are comparable by approximate location, similar market

mix, and style of leisure property. A thorough analysis of the competitors pertaining to

amenities and food and beverage offerings is shown in Table 10.

TripAdvisor has been a reputable ranking system within the hospitality sector for

many years. It is popular with hoteliers, as well as guests, as a way to convey feedback on

personal experiences when staying at any hotel around the world. TripAdvisor is an

influential travel website that will be used to determine the competitors’ hotel popularity (a

score out of 5), position in the market, the product class, and to analyze their target market.

Courtyard Marriott Ottawa

The Courtyard Marriott Ottawa’s current rank on TripAdvisor is 23rd (Courtyard by

Marriott Ottawa Downtown, 2015). The hotel features 183 rooms and is part of the upscale

product class. The rooms are split into three categories; two queen beds with 400 sq. ft., one

king bed with 350 sq. ft., and one king bed and a sofa bed at 550 sq.ft. Due to its close

proximity to the ByWard Market and Parliament buildings, The Courtyard Marriott Ottawa

has a lot of business travellers, and thus offers 5,000 sq. ft. of meeting space. There are many

city attractions around within walking distance from this hotel, such as Parliament Hill,


ByWard Market, the Museum of Nature, and Rideau Canal, making the Marriott one of the

busiest in Ottawa for both business and leisure travelers.

Preferred ARC The Hotel

ARC The Hotel is currently ranked 28th on TripAdvisor (ARC The Hotel, 2015) for

Ottawa hotels. ARC is found within the Independent product class. The hotel is defined as

boutique property and holds 112 rooms covering 1 queen bed, 2 double beds or 1 king bed

(Guest Rooms, 2015). They also offer luxurious suites to leisure travellers. ARC The Hotel is

on the opposite side of the downtown core than the Courtyard Marriott Ottawa Downtown, but

within walking distance to the same leisure attractions. ARC The Hotel has a much smaller

meeting spaces, totalling just 1,427 sq.ft. They focus mainly on tourists and leisure travellers.

Hotel Indigo Ottawa Downtown

According to the TripAdvisor Canada website, Hotel Indigo Ottawa Downtown is a

boutique property that ranked 26th overall in Ottawa (Hotel Indigo Ottawa Downtown,

2015). Hotel Indigo has an upscale product class with 106 rooms offering one king bed, one

king bed and one sofa bed, one queen bed, two double beds, two queens beds, as well as king

and queen bed suites. Compared to the ARC and Courtyard hotels, this hotel is located closer

to Parliament Hill, ByWard Market, etc. The total meeting space in Hotel Indigo is just 2,399

sq. ft. (Hotel Indigo Ottawa Downtown, 2015), which is smaller than the average competitor.

Hilton Garden Inn Ottawa Airport

The Hilton Garden Inn Ottawa Airport is ranked 4th according to TripAdvisor Canada

(2015) for hotels in Ottawa. This newer hotel has 167 rooms and categorized as an Upscale

product class. They have divided their bed-types in two styles; guest rooms and suites (Hilton

Garden Inn, 2015). The bed mix of guest rooms consists of either one king bed, two queen

beds, one king with a sofa bed or two queen beds (Hilton Garden Inn, 2015). The suites

consist of a one king bed and one bedroom, or one king bed and conference room. The Hilton

Garden Inn is located beside the Ottawa Macdonald-Cartier International Airport. Their target

market is business travellers, and those travelling for large events, be it personal or leisure.

They have ample meeting space, totalling 6,828 sq. ft. to accommodate large events.

Les Suites

Les Suites is currently ranked 18th (TripAdvisor Canada, 2015) in Ottawa. Les Suites

is an Independent hotel, housing 240 rooms. The rooms have an open concept kitchen within

the room. Their target market is mostly families or short term employees. They offer the least

amount of meeting space, totalling only 600 sq. ft. (All The Comforts of Home, 2015).

Changes to Competitive Supply

Table 11 shows Ottawa’s room supply growth as well as the potential for growth of the

room supply leading up to 2018. There appears to be a growth variance increase each year by

1% leading up to 2017, and then a decrease in the growth variance to 1% in 2018. Using the


trend line in Table 11, it can be forecasted that the trend of growth in accommodation supply

will continue to slowly decrease over time.


Due to closures, partial closures, conversions, expansions and new openings, the

overall room supply for 2014 is expected to decrease by 1,308 rooms. Ottawa had a net loss

of 712 rooms between 2013 and 2014 (Smith Travel Research, 2014). This poses both good

and bad assumptions, showing that Ottawa now has less competition and more room for

growth, but signs of past closures may be worrisome to potential investors. Hotels in Ottawa

are closing and converting, but there are hotels that are still being built and re-

developed. Some of Ottawa’s hotels are quite old and the time has come that they need to be

closed, in order to make room for newer ones coming in. Refer to Table 12 for a forecast of

room supply increase.


Historic Accommodation Demand

After taking a deep look at Table 13, the historic occupancy percentage has varied over

the past 5 years. In 2010, the occupancy percentage was 69.2% with the average room rate of

$132.43. Those rates had increased regularly in 2011 to become 71.3% and $135.15,

respectively, but drops slightly in 2012 with only 69.8% and $139.52 average room rate.

However, 2013 marked a decreased of 1.5% occupancy, and average daily room rate still

continued to increase. The loss comes from the federal government’s decrease in budgetary

allotment for meetings and conferences, and other problems arising from the development of

this city and Canada’s economy. A marked increasing 1.4% occupancy and a $142.31 daily

room rate occurred in 2014 after an effort of the tourist sector in promotions and advertising

on Ottawa tourism websites. Using the numbers provided in 2015, would have a predicted

increase of 0.02% occupancy due to the closures and downscale renovations of competitor

supply; the demand still continues to increase.


Historic and Projected Market Performance

Table 14 used information from Smith Travel Research (Smith Travel Research, 2014)

to fill out the annual room nights available for 2010-2014. In the room nights available section

of Table 14, the numbers increased year over year. Using the rooms available and the

occupancy percentage to calculate the demand of the annual rooms occupied for each

year. The percentage change for each year was calculated by using the current year subtracted

by the first year and divided by the previous year to find the percentage change. The

percentage change had many ups and downs for the annual room nights available. Using

analysis from next year events and other potential sources, the expected rate of the proposed

hotel will increase 0.4% from 2015 to 2016. In 2017, with the 150th birthday of Canada

celebration, annual room nights available would create a higher demand with 1% higher than

the previous year. After 2017, 2018 is without big events, so it is forecasted that the

percentage would drop by 3.1% from the previous year. Table 2 shows that annual room

nights available would continue to fall 1.0% in 2019, and in 2020 would come back with an

increase of 1% higher than the year before. Annual room nights occupied changes in 2010-

2014; when looking at the future it is forecasted that 2015 will be 2.6% and 2016 will

decrease by 1.9%. When looking at 2017, it is believed that the change percentage will be

10.1% due to many sporting events and Canada’s 150th birthday. In 2018, 2019 and 2020 there

is going to be a steady decrease.


Projected Overall Market Occupancy and Proposed Hotel Occupancy

Table 15 shows that the proposed hotel will include 140 rooms. In the first year of

opening, 2016, it is expected that occupancy rates will be slightly below the overall

competitive market occupancy percentage at 70%. This is a direct result of the fact that the

hotel will not be open for a full 365 day calendar year, and the partial completeness of the

other lots on Chaudière Island. Once complete, the Isles should be a very inviting part of

Ottawa, however construction crews, materials and machinery is not an attraction and may

prove to be a challenge in penetrating the market within the first year. Canada will turn 150

years old on July 1, 2017 and Ottawa has been planning the events to take place on that day

for some time now. Ottawa Tourism, on the whole, is expected to spike leading up to that day

and the Isles will have far less, if any, evidence of a construction zone, which is why the

proposed occupancy is forecasted to increase so dramatically. From 2018 to 2020, based on

trends in the Accommodation Supply Analysis, the occupancy percentage for the proposed

hotel is expected to steadily increase by rates of 0.5% to 1.0% per annum after returning to

rates slightly above the overall competitive market occupancy. The proposed hotel should

nearly achieve market penetration in 2016. Market penetration should be achieved in 2017,

and continue into 2020.


Projected Average Daily Room Rates

During the first year of business, the proposed hotel should be marketed at a lower

average daily rate (ADR) so as to not induce the sticker shock to its potential customers. In

2017, due to the 150th birthday of Canada, ADR will be increasing vastly across all Ottawa

hotels, and even more so within the hotels closest to downtown. After 2017, the ADR should

start to slowly decline towards the $145 range that the ADR was in 2016. Rate penetration

will be achieved during 2016 and significantly increase in 2017, fall in 2018 and increase as

2020 approaches. On average, over the next five years, the rate penetration to total market is

calculated to be 113.48%. While the average market rate is lower than the proposed property

average rate, it is due to the fact that it is a brand new hotel and development site, along with a

potentially upscale or upper upscale product classification that allows for higher rates.

Projected Market Performance Trends and Demands

Hotel market segments are usually divided into four groups: corporate, leisure,

conventions and tours. Ottawa’s smaller groups include: rack, corporate/government, leisure,


group convention, SMERF, Tour group, tour FIT, and long stay. The rack rates are difficult to

predict since there are many different factors. Ottawa is known as a political city. The

government and group conventions play an important role in the success for hotels in the

region and thus, had a high occupancy percentage during the regular year. Table 17 shows that

in 2014, corporate/government and group convention reached 26% and 16%, respectively, of

total room sold. Since most of the hotels in the region expect more revenue from the

corporate and convention markets, more hotels are focused in that area.

The location of those hotels are mainly downtown, 38% are within the core centre of

Ottawa, as determined in the supply analysis. Many other hotels are located at the south end

close to the airport, and west end, close Canadian Tire Centre, where many sport events are

held. This could explain why most of the domestic visitors come mainly from Toronto or

Montreal. In 2013, with the root problem of downsizing in employment and projects from the

federal government, the 1% drop in occupancy percentage shows the need to expand markets

from different angles. The change from permanent employees to contract employees in the

federal government, and those corporate partnerships brought 5% of Long Stay into Ottawa.

The Leisure market brings another 28% of occupied rooms during the year with annual events

that are held in Ottawa: Tulip Festival, Winterlude, Bluesfest, Canada Day, etc. The general

problem in Canada’s economy in 2013 and 2014 brought this higher volume market down

slightly, but for the next 5 years, the expectation of positive development in the economy

would take this market back to the same as before. International travellers to Canada, Asia

and Latin America market comprises the highest increase of visitors to Canada, while the U.S.

market has decreased significantly and the UK increased very little (Statistics & Figures,

2015). Social networks and websites have become larger influences for today’s consumers.

The more attractive and updated the website or profile page, the more hotels can use them to

their advantage through marketing and promotions. An increase of web page views can give

an indication of potential tourism increases.

In 2013, Ottawa’s digital marketing marked a big effort to raise the investments in the

official website Ottawatourist.ca as well as Facebook, YouTube, Instagram and Twitter

accounts. Those are an increase in 19.5% of official website, 40% of Facebook, 75.8% of

twitter of viewers and followers (Ottawa Tourism, 2013). The third night free offer that

started in 2013 to improve the quantity of short term overnight customers has been a

successful promotion, but it may become less effective over the next 5 years. The downsizing

in budgeting for marketing also affected Ottawa tourism, which showed in the decrease of

occupancy percentage 2013 and 2014. Over all, the SMERF and Tour FIT with 6% and 2%,

respectively, would just be there as another key factor in the hotel industry but most

importantly, the 150 years celebration of Ottawa in 2017 and Tim Hortons Brier in 2016, are

those that expect to make hotel markets gain back their increasing percentage for the next 2

years and help secure any investment in proposed projects for hotels in leisure and

international tourism.

Historic Market Segmentation

According to Smith Travel Research the group with the highest market segmentation

in Ottawa was Government and Leisure guests. This is most likely due to Ottawa’s federal


government workers and guests, and Ottawa’s spring and summer attractions such as the Tulip

Festival, Canada Day, and Bluesfest.

Projected Market Mix

Table 18 shows predictions on the market segmentation of room nights stays for the

proposed Element by Westin. Leisure was predicted to be 35% of the market mix due to its

close proximity to the downtown area, the style of the hotel and due of spring and summer

events. Corporate/Government is predicted to be 19% due to its close proximity to the

downtown Ottawa/Gatineau area. The long stay market is predicted to be at 10% for those

wanting to extend their in Ottawa. SMERF market segmentation is predicted to be 9% due the

type of hotel being geared more towards leisure stays. Rack rate is expected to be at 7%.

Group convention is predicted to be at 2%, due to the hotels lack of proposed banquet and

convention rooms due to the Element by Westin brand.


Facility Recommendations

Introduction

Through the Guest Units, Recreation and Meeting Facilities, Food & Beverage

Facilities and Lobby & Reception areas, brand standards and facility recommendations for

both cultural and eco-friendliness are seen through references to the current Element by

Westin hotels in Canada, as well as the Element by Westin brand, as a whole. These

recommendations are based on the needs of the proposed location, the needs of potential

guests within Ottawa and surrounding areas, as well as through the Element by Westin hotels

in Vaughan, Ontario and the newly opened Metrotown in Vancouver, British Columbia.

Lobby & Reception Area

The hotel lobby and the reception area should embody the distinct personality of the

hotel brand, Element by Westin. The lobby and reception area houses the front desk, which

has a view of everyone who is entering or exiting the hotel. The lobby should have

comfortable seating with accent tables, where guests can relax or visitors can wait for their

family or friends. It also provides a variety of shops and services where guests can access

convenient amenities. The front desk itself and the furniture in the lobby should be simple,

modern and clean. Pictures, posters, plaques, announcements, hotel directory, etc. should be

placed in silver frames, not adjacent to the Brand Wall. Floral arrangements should be placed

in square, cylindrical or rectangular planters that are either aluminum, frosted, or clear. Local

or native flowers or plants, or bamboo shoots and grasses can be used to complement to the

overall lobby design. Lighting should always be bright and inviting to guests. The main floor

color in the lobby should be a light grey; dark grey or white can be used as a highlight or

accent color to keep the lobby looking clean and elegant. The ceiling should be either a

smooth drywall, or a suspended ceiling.

Guest Units

The hotel will feature a total of 140 guest rooms. The recommended room mix is

Single King (301 sq. ft.), Double Queen (366 sq. ft.), and King Suite with Queen Sofa bed (398-

560 sq. ft.) (Starwood Hotels, 2015). Amenities in the room will feature HeavenlyⓇ beds, sofas,

television, desk with an ergonomic chair, in-room safe, heating and cooling controls; green cards

for linens will be provided in the nightstand. The green cards allow for guests to participate in

eco-friendly initiatives by only washing linens as needed, rather than daily washing. Guest room

kitchens are fully equipped and feature coffee/tea maker, energy efficient appliances (fridge, two

burner stove, dishwasher, and microwave) and utensils are also provided (Element by Westin,

2015). The washrooms will consist of a HeavenlyⓇ shower and bathtub, energy efficient hair

dryer, robes, towels, as well as biodegradable soaps and shampoo. All rooms will include green

lighting, with energy efficient lightbulbs and motion sensors, complimentary Wi-Fi, key card

entry systems, and be smoke-free.


Food and Beverage Facilities

A typical floor plan for the Element by Westin, which as a brand, has limited Food and

Beverage facilities, consists of 459 net sq. ft. of space for the back of the house, known as

‘Food Service’, and 509 net sq. ft. of space for the front of the house, known as ‘Food and

Beverage’(Element by Westin, 2015). They offer Rise, a complimentary breakfast with hot

sandwiches, smoothies, granola, fresh fruit, etc. (Element by Westin, 2015). Relax is held 4

nights per week for guests, and friends and family of guests. They feature a different

smoothie every night and have healthier food and beverage pairings in a reception style

gathering (Element by Westin, 2015). In each guest room, there is a fully equipped kitchen

and the Element by Westin houses Restore, a self-serve, 24/7 pantry with beverages (alcoholic

and non-alcoholic), condiments, meats, cheeses, packaged foods, snacks, soups, toiletries, etc.

(Element by Westin, 2015). Seeing as there are going to be many shops on the Isles, it is safe

to assume that there will also be restaurants, which the Element by Westin could partner with

to cater to their guests. Element by Westin also partners with grocery stores for deliveries to

their guests. The Mill Street Brew Pub is nearby and could offer a partnership for beers as

well as food options. Using partnerships within the community, in close proximity speaks to

the Element by Westin branding by not having large transport trucks coming from across the

country and emitting mass sums of pollutants into the air.

Meeting Facilities

Meeting facilities for the Element by Westin, are required due to the proximity to both

downtown Ottawa and Gatineau (Element by Westin, 2015). While meetings are not the

central focus of the Element by Westin, it should be able to accommodate some smaller

groups. The approximate area for meeting space in the hotel should be 2,900 sq.ft. to allow

for one room to accommodate up to 120 guests, and three other rooms to accommodate up to

30 guests each. All of the meeting rooms should be equipped with audio-visual systems that

include surround sound, Smart Boards, microphones, computer equipment and lighting that

can be adjusted as per guest requests. There should be adequate storage space for chairs and

tables behind the scenes. All meeting rooms will have large glass windows to allow sunlight

in during the day, which reduces the amount of energy used, and stays true to the eco-friendly

brand that is the Element by Westin.

Recreational Facilities

All Element by Westin hotels have a vast supply of recreational facilities including a

fitness centre, saltwater pool, hot tub, and nearby shopping and dining. The proposed hotel

should be no different. The fitness centre should be equipped with elliptical machines,

treadmills, strength training equipment, free-weights and padded floors where guests may do

stretching exercises. The pool should be divided into a deep and a shallow end on a gradient

slope with a small slide for children. The pool should be in the same area as the sauna and hot

tub. It’s preferable that in the pool area, there would be an extra tower provided with lounge

chairs and a lifeguard on duty at all times. Although it is not necessarily a brand standard, the


hotel could include a spa within the hotel. If that were the case, it could contain two

individual rooms and two couples rooms, equipped with eco-friendly furniture, plants and spa

products, such as waxes and lotions. The aforementioned facilities should be enclosed with

large windows that can benefit from sunlight during the day, as well as easy access to public

washrooms, showers, and changing rooms. Key card systems should be used throughout these

facilities for ease of access to guests as well as for their safety and the safety of the property.

Conclusions

The recommended facilities for an Element by Westin hotel, located on Chaudière

Island are an open concept lobby and reception area with muted colors, 140 large, eco-friendly

guest rooms with fully loaded kitchens, minimal food and beverage offerings and 2,900 sq. ft.

of meeting space options, as well as standard amenities such as the fitness centre, hot tub and

saltwater pool. Most Element by Westin hotels follow this trend of amenities and the lot on

Chaudière Island would do well to follow by example, based on their target markets. The

product/service mix fits well into the Isles with the focus being longer staying travellers on a

leisure trip and an environmentally friendly focused client base. Please see Appendix A for

potential floor plans of the guest suites (Element by Westin, 2015).


Financial Feasibility

The financial feasibility portion of the proposed Element by Westin on Chaudière

Island was completed with research and analysis of overall supply and demand for the hotel

industry in the city of Ottawa, as well as current data from Smith Travel Research. The data

collected for the previous sections of this document were also considered in the financial

feasibility. Forecasts were made using standard per key costs, as well as total costs for the

proposed 140 room Element by Westin Hotel. Included in this section are the Development

Costs (Table 19), Opening Balance Sheet (Table 20), Amortization Schedule (Table 21),

Building Depreciation (Table 22), FF&E (Furniture, Fixtures and Equipment) Depreciation

Table, (Table 23), Pro Forma (2016-2020) (Table 24), and a Cash Flow (Table 25) and NPV

(Net Present Value) Analysis (Table 26) and Year 1 Ratios (Table 27). A complete analysis

of all financial information can be found at the end of this section. Refer to Appendix B for

financial tables pertaining to a 65/35 liabilities to equity ratio.


Building Depreciation


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Appendix A

(Source: Element by Westin, 2015)


Appendix B