Irish Hotel Market Review - WordPress.com...hotels in Dublin; of this, 11 hotels are 5 star, 45 hotels are 4 star and 72 hotels are 3 star, with the remaining 25 hotels 2 and 1 star

Irish Hotel Market Review SUMMER 2014

2 Summer 2014 | Irish Hotel Market Review

Introduction

The following report provides an overview and analysis of the performance of the Irish hotel market; specifically market changes since the onset of the recession and transaction activity in the first half of 2014.

An overview of the general economic environment in Ireland is provided, with particular focus on the Irish tourism and hotel sectors. Following this, a detailed analysis of the Irish hotel market is presented in terms of its history and the size of the market at present by tourism border regions. In addition, the report provides a classification of hotels by star rating, together with a breakdown of tourism revenue and the volume of hotel rooms available in each region.

Details on transaction activity are then provided together with investment conditions in the hotel sector; specifically purchaser type, transactions by location and the types of hotels transacted. Supply levels are discussed in terms of hotels on the market and hotel developments in the pipeline. A brief outlook is then provided on activity levels for the remainder of 2014.


Economic Overview and Tourism Performance

Ireland’s economic recovery is strongly underway; 2013 marked a year of significant progress and this strong momentum continued into 2014. GNP increased sharply on an annual basis by 3.4% in 2013, driven strongly by the 4.6% increase in the latter half of the year. This strong performance extended into 2014 with GNP growth of 0.5% in the first three months of the year, while GDP grew sharply by 2.7% in the period.

With the world economy also experiencing a similar recovery, particularly Ireland’s main trading partners, the US and the UK, the domestic and foreign tourism markets are directly impacted. In 2013, tourism accounted for 4% of GNP. Furthermore, total tourism revenue in 2013 stood at €5.7 billion, of which €4.2 billion was generated from overseas visitors, a sharp rise of 12% from 2012.

The most significant recovery indicator is the improvement in the labour market, notably the reduction in the unemployment level. The latest CSO Quarterly National Household Survey saw the unemployment rate in Ireland falling to 12% in quarter one 2014, from a peak of 15.1% in the first quarter of 2012. Moreover, the growth in total employment in the year to quarter one 2014 was 42,700, a rise of 3.3%. One of the most significant increases in employment was in the Accommodation and Food Service Activities Sector, which rose by 13,500, or 11.2%, in the period, while employment in tourism in Ireland has increased by 21% since the quarter one 2011 low of approximately 114,400 jobs. Overall, the Irish Hotels Federation (IHF) estimates that the tourism sector in Ireland supports almost 200,000 jobs, of which approximately 54,000 are employed by the hotel sector.

Tourism exports had a particularly strong year in 2013, influenced largely by the government supported tourism initiative “The Gathering”, recording the highest number of foreign residents visiting Ireland in six years. According to the latest CSO tourism statistics, the number of overseas residents travelling to Ireland in 2013 reached approximately 7 million, of which 1.16 million were from the US and Canada, the highest figure ever recorded for that region. Domestically, trips by Irish residents within the country also increased in 2013 for the first time since 2008. This trend continued into the first quarter of 2014 with an increase of 8.5% in domestic trips by Irish residents in the three month period.

CSO figures reveal that overseas visitor numbers to Ireland for the period January to May 2014 rose by approximately 9.2%, an increase of 228,200 visitors when compared with the same period in 2013. Trips by residents of the UK, Ireland’s largest market, increased by 13.1% on an annual basis, while trips by residents of the USA and Canada increased by approximately 8%. Strong performances in both the UK and US economies are significantly contributing to this resurgence in the tourism industry and is driving the demand for hotel services in Ireland.


Figure 1

Tourism Revenue by Region, 2013

Source: DTZ Sherry FitzGerald Research / Failte Ireland, 2013

DUBLINEAST &MIDLANDS

WEST

NORTHWEST

SOUTH EAST

SOUTH WEST

SHANNONREGION

Tourism Revenue by Region, 2013

20% +

10% - 20%

< 10%

Economic Overview and Tourism Performance

74% of tourism revenue in 2013 was generated from overseas tourists

This compares with the total tourism revenue of €5.4 billion in 2012, of which €3.8 billion was received from overseas visitors. Dublin remains the region with the highest tourism revenue at approximately 35% of the total figure. This is followed by the South West and West regions of approximately 19% and 13% respectively.

While recovery in tourism and in the hotels sector is evident, domestic demand in the economy remains somewhat fragile. According to the IHF, tourism recovery in 2013 was not spread evenly throughout the country, with Dublin and other tourism hotspots such as the West and South-West regions performing strongly while other, more rural, locations continue to face the pressure of weak domestic demand. Furthermore, personal consumption fell by 0.1% in the first quarter of 2014 when compared with the previous three months; however, the rate of decline is significantly lower and has improved on its comparable periods the two previous years. Moreover, the Department of Finance projects that consumer spending will rise in 2014 and 2015 by 0.4% and 0.8% respectively.

According to the IHF, while indebtedness in Irish hotels is down from €6.7 billion at the end of 2011 to €5.3 billion,

the significant overhanging debt problem still remains a key issue and is supressing recovery in the sector; a further reduction of €1.4 billion is required if the sector is to remain a viable

area in which to invest. This is particularly the case for medium and smaller-sized hotels outside of Dublin that still require investment and debt restructuring.

This said, investor and consumer sentiment is rising and growth forecasts for Ireland have been upgraded. Having reached a 7 year high in April 2014, the trajectory in sentiment is largely on the increase. Moreover, based on the assumption of improvements in the balance of payments and in employment, and increased investor activity, the Department of Finance forecasts GNP and GDP growth in 2014 of 2.7% and 2.1% respectively.

According to the latest Failte Ireland data releases, provisional figures for 2013 tourism revenue in Ireland from both domestic and overseas tourists stood at approximately €5.7 billion. Of this, €4.2 billion was generated from overseas tourists, which accounts for approximately 74% of the total revenue.


Irish Hotel Market

The roots of Irish tourism run deep; the Irish Tourism Association produced their first hotel brochure in 1925 promoting 400 hotels. Since then, the Irish hotel market has substantially evolved, with the number of hotels and room capacity growing significantly and doubling by the 2000s. This volume remained stable between 2000 and 2005.

By 2007 there were 857 hotels registered in Ireland, with 51,300 rooms. This volume had increased markedly by 2009 to reach a peak of 915 hotels, or 60,100 rooms, almost a one-third jump in the stock of rooms and bed capacity since 2005.

Although capacity expanded rapidly during the 2000s, heavily influenced by tax based incentives, hotel profitability remained steady as demand for overnight stays and other hotel services grew at pace in tandem with rapidly rising disposable incomes at the time.

However, the property crash brought with it weakened domestic demand, which resulted in reduced hotel profitability and massive hotelier debt burdens; thus, many small and large scale hotels became victim to the recession. This combined with a halt in construction activity resulted in the number of hotels in Ireland open for business falling significantly by 11.6% to stand at 820 in 2014, with approximately 57,400 available rooms.

Dublin

The Dublin region currently has the largest proportion of hotel rooms with 18,825 rooms, representing 33% of overall room capacity. This is almost double that of the next largest proportion of hotel rooms in the South West region. In total there are 153 hotels in Dublin; of this, 11 hotels are 5 star, 45 hotels are 4 star and 72 hotels are 3 star, with the remaining 25 hotels 2 and 1 star rated. In terms of hotel size as reflected by the number of rooms, Dublin holds the three largest hotels, namely the Double Tree by Hilton (formerly The Burlington Hotel), Citywest Hotel & Golf Resort and Bewleys Hotel Dublin Airport. The stock of hotel rooms and bed capacity in Dublin strongly correlates with tourism revenue in Ireland in 2013, whereby approximately 35% of the overall tourism revenue for the year was generated in the Dublin region. Moreover, it is interesting to note that visitor numbers to Dublin in 2013, both domestic and overseas, were in the region of 5.8 million, which accounts for approximately a third of all visitors to Ireland in the year. This suggests that Dublin is not just regarded as a prime hotel location for business trips but for recreational and leisure purposes also.

Figure 2

Irish Hotel Distribution by Star Rating, 2014

Source: DTZ Sherry FitzGerald Research / Failte Ireland

Table 1

Volume of Hotels and Hotel Rooms, 2014

Source: DTZ Sherry FitzGerald Research

Tourism Border Region No. of Hotels

Volume of Hotel Rooms

% of Total Hotel Room Capacity

Dublin 153 18,825 32.8%

South West 153 9,795 17.1%

West 129 6,918 12.1%

East & Midlands 108 6,297 11.0%

North West 100 5,337 9.3%

Shannon Region 81 5,138 9.0%

South East 96 5,058 8.8%

State 820 57,368 100%

DUBLINEAST &MIDLANDS

WEST

NORTHWEST

SOUTH EAST

SOUTH WEST

SHANNONREGION

Total No. of Hotels: 820

Star Ratings of Hotels by Tourism Border Region

Shannon Region40122 23 4

East & Midlands 46172 38 5

South West 61185 59 10

South East 38135 37 3

Dublin 72214 45 11

West 54226 44 3

Northwest 43194 33 1

1* 2* 3* 4* 5*


Louth 1.2%

Monaghan0.6%

Dublin32.8%

Meath2.1%

Cavan1.4%

Westmeath2.0%

Kildare2.0%

Laois0.9%

Carlow0.9%

Wicklow2.4%

Wexford2.5%

Kilkenny1.9%

Waterford2.7%

Cork7.9%

Kerry9.2%

Limerick3.7%

Offaly0.6%

Clare4.4%

Galway7.8%

Mayo4.0% Roscommon

0.3%

Sligo1.8%

Longford0%

Leitrim0.5%

Donegal5.0%

Tipperary1.4%

County Volume of Hotel Rooms per County Dublin 32.8%Kerry 9.2%Cork 7.9%Galway 7.8%Donegal 5.0%Clare 4.4%Mayo 4.0%Limerick 3.7%Waterford 2.7%Wexford 2.5%Wicklow 2.4%Meath 2.1%Kildare 2.0%Westmeath 2.0%Kilkenny 1.9%Sligo 1.8%Cavan 1.4%Tipperary 1.4%Louth 1.2%Carlow 0.9%Laois 0.9%Offaly 0.6%Monaghan 0.6%Leitrim 0.5%Roscommon 0.3%Longford 0.0%

Figure 3

Volume of Hotel Rooms per County, 2014


South West

Traditionally a region that attracts plentiful tourists, it is not surprising that the South West, consisting of Cork and Kerry, has the second highest proportion of hotel rooms in 2014, recording 9,795 rooms. Albeit interestingly, there are the same number of hotels in the South West as there are in Dublin, reflecting a

largely popular tourist location but for smaller scale hotels. After Dublin, the South West has the largest number of 5 star hotels, 10, while it has the largest number of 4 star

hotels in the country, 59. Again the stock of available rooms in the South West region, representing 17.1% of the total number of rooms, strongly correlates with both the proportion of tourism revenue in the South West in 2013, approximately 19%, and the proportion of total visitor numbers, 18%.

West

In a similar performance bracket to the South West, the West region holds the third spot of the top three performing regions in 2014; tourism revenue and visitor numbers for the West both recorded approximately 13% of overall tourism revenue and visitor numbers. In terms of room capacity, there are 6,918 rooms, which represents 12% of the hotel room capacity in Ireland. This is driven strongly by the stock of hotel rooms in Galway and Galway city, 7.9%. Overall there are 129 hotels in the West, of which three hotels are 5 star, 44 hotels are 4 star and 54 hotels are 3 star, while Galway city also hosts the 5th largest hotel in Ireland in terms of the number of rooms; the Connacht Hotel Galway.

East & Midlands

The East and Midlands accounted for 6,297 rooms in 2014 which represents 11% of the hotel room capacity. In total, there are 108 hotels in the East and Midlands region, comprising 14% of all the 5 star hotels in the country, while 38 hotels are 4 star and 46 hotels are 3 star. It is interesting to note that the East and Midlands also hosts the county with the lowest number of hotels and room capacity, Longford, with 23 rooms in just two hotels. Furthermore, in terms of tourism revenue for 2013, the East and Midlands region falls under the lower bracket of sub 10% of overall revenue by tourism in Ireland in the year.

North West

The North West region recorded 5,337 hotel rooms in 2014 spanning across 100 hotels. There is only 1 hotel in the North West that is 5 star, while there are 33 and 43 hotels that are 4 star and 3 star hotels respectively. Similar to the East and Midlands, the proportion of total tourism revenue in 2013 generated in the North West region fell to single digit figures, indicating that these regions were performing at a slower pace than the prime tourist locations of the country.

Shannon Region

The Shannon Region has the second lowest proportion of hotel rooms in 2014, recording 5,138 rooms in 81 hotels. Furthermore, this region has the lowest number of hotels located in any region. Interestingly, over 90% of the rooms in the Shannon region are spread across Clare and Limerick, with the remaining located in North Tipperary and West Offaly. It is also noteworthy that 11% of the 5 star hotels in the country are located in the Shannon region, while 23 hotels are 4 star and 40 hotels are 3 star.

South East

The lowest proportion of hotel rooms was recorded in the South East region, with only 5,058 rooms in 96 hotels, of which three are 5 star hotels, 37 are 4 star hotels and 38 are 3 star hotels. Furthermore, approximately 60% of the hotel rooms available in the South East region are located in Waterford and Wexford, with the remaining located in Kilkenny, Carlow and South Tipperary. Similar to the East and Midlands, the North West and the Shannon region, the proportion of tourism revenue in Ireland generated in the South East was in single digit figures in the year 2013.

Largest number of 4 star hotels located in the South West


Following a number of challenging years for the Irish hotel sector, 2012 saw the re-emergence of investors to the Irish hotel market, both domestic and international. 2013 witnessed a stabilisation in asset values with increased optimism among hoteliers with regard to trading conditions and willingness to invest in upgrading and refurbishment.

During the year 2013, demand for hotel properties grew at speed, with approximately 40 hotel sales throughout the country over the year, the most active year by volume for hotel sales since 2006. The total value of hotel acquisitions in 2013 was estimated to be in the region of €250 million.

The increase in hotel transactions that became very apparent in 2013 has accelerated into 2014 as banks and NAMA continue

to deleverage. Liquidity has also risen in Ireland and is becoming less of an issue for investors entering the market. The past twelve months has seen bond yields falling and expected returns rising, making properties more attractive in

terms of pricing. This all leads to renewed investor confidence in the economy.

Transaction activity in 2014 commenced on an extremely high note, with buyer appetite showing no signs of easing. The opening quarter of 2014 saw the volume of hotel sales, excluding loan sales, reach €83 million, while a stellar second quarter of the year saw a 25% increase on quarter one, recording sales in the region of €104 million.

This brought the volume of hotel sales in the first six months of the year to approximately €187 million, with a further €31 million of hotels sale agreed.

Notable deals in the first half of 2014 include the sale of the 4 star Hilton Hotel Charlemont Place, Dublin 2 for approximately €30 million to US businessman John Malone. Other notable sales include that of the 4 star Portmarnock Hotel & Golf Links for €29.8 million to Kennedy Wilson and the Clarion Hotel Dublin Airport which was purchased by the Dublin Airport Authority for approximately €10 million. It is being leased to Dalata Hotel Group who have recently rebranded it as the Maldron Hotel Dublin Airport.

In Cork, the Radisson Blu Hotel, Little Island was acquired by iNua Hospitality for €9 million; the well-known 4 star Oriel House Hotel, Ballincollig, was bought up by the Talbot Group for €8 million, shortly following its purchase of the Midleton Park Hotel for €3.5 million; while the 4 star Kingsley Hotel was purchased for €7 million by the Beijing based Kang family and is currently mid-development and refurbishment.

Elsewhere, the Rivercourt Hotel in Kilkenny was sold for €9 million to the Neville Group, while the 4 star Moyvalley Hotel & Golf Resort in Co. Kildare was sold for approximately €3 million to a consortium led by Oliver Brady.

Performance of the Irish Hotel Market

Hotel sales saw a 25% increase in quarter two 2014 when compared with quarter one


Table 2

Top 10 Hotel Transactions (Sold), 2014


Hotel County Star Rating Price QuarterPrice per Room Status Purchaser

Origin

The Shelbourne Hotel Dublin 5 Star €111m Q1 2014 Sold (loans) US

Hilton Hotel Dublin 4 Star €30m Q1 2014 €155,440 Sold US

Portmarnock Hotel & Golf Links Dublin 4 Star €29.8m Q2 2014 €217,391 Sold US

Maldron Hotel Parnell Square Dublin 3 Star €15.3m Q2 2014 €121,429 Sold Irish

The Lodge at Doonbeg & Golf Resort Clare 5 Star €15m Q1 2014 €73,530 Sold (off market) US

Mount Juliet Kilkenny 4 Star €15m Q2 2014 €17,442 Sold (off market) Irish

Pearse Hotel Dublin 3 Star €14.4m Q2 2014 €142,574 Sold Irish

Clarion Hotel Dublin Airport Dublin 5 Star €10m Q1 2014 €60,484 Sold Irish

River Court Hotel Kilkenny 4 Star €9m Q2 2014 €100,000 Sold Irish

Radisson Blu Hotel, Little Island Cork 4 Star €9m Q1 2014 €63,492 Sold Irish

Significant off-market transactions during the six month period include the sale of the 5 star Doonbeg Lodge & Golf Club in Co. Clare for a sum in the region of €15 million to US billionaire Donald Trump, while the world renowned Mount Juliet Resort in Kilkenny was sold to Brehon Capital Partners and Emmett O’Neill for a reported €15 million.

A feature of the market that has become more prominent in the past year is the restructuring or sale of Irish hotel debt; loans tied to The Shelbourne Hotel in Dublin were acquired by US investment group Kennedy Wilson for €111 million in the first quarter of 2014, while the Ritz Carlton Powerscourt loans were sold to Brehon Capital in the latter part of 2013.

Demand for hotel properties has been underpinned by Dalata Hotel Group’s recent IPO raising approximately €265 million, showing a clear sign of investor confidence in the market. Dalata is currently Ireland’s largest hotel operator and has a clear strategy to acquire a portfolio of well-located 3 and 4 star hotels. They have not lost any time in implementing this strategy and have recently acquired two hotels; the Pearse Hotel on Pearse Street for €14.4 million and the Maldron Hotel on Parnell Square for €15.3 million. Overall, Dalata plans to use its capital to purchase 16-25 hotels throughout Ireland.

iNua Hospitality, one of Ireland’s newest hotel investment funds, has also demonstrated confidence in the Irish hotel market by purchasing two well-located Radisson Blu Hotels in Limerick city and Little Island, Cork in the first half of 2014, for €3.5 million and €9 million respectively.


Investment by Location

Dublin’s hotel market, in particular, has experienced a significant recovery. With the number of overseas tourists visiting Ireland on the increase and consumer sentiment on the rise, many investors believe the worst is over and that there is now value for money to be found in hotels, particularly in Dublin.

Despite the demand for hotels in regional locations lagging behind that of the Dublin market, interest has picked up in recent months and many investors are now concentrating on regional properties, where competition for stock is more manageable when compared to Dublin city centre. Investors also believe that there is still value to be achieved in acquiring regional properties where they still have the opportunity to buy into a recovery story and they see the return on such properties being much greater over the medium to long term, given that they are acquiring properties below replacement cost.

The majority of sales in the first six months of the year were hotels located in the Dublin region, 72%, while 11% were in the South West and the remaining located in the South East, the Shannon region, the East and Midlands and the West. Furthermore, of the hotels transacted in the period, 46% were 5 star, 42% were 4 star and 12% were 3 star. This indicates that investor interest is mainly focussed on the larger, better quality 4 and 5 star hotels.

Figure 4

Hotel Sales Volume by Location, H1 2014



Investor Type

Demand for hotel assets is strongest from foreign buyers, purchasing 68% of the market share in the first six months of 2014, while domestic buyers accounted for the remaining 32% of the total spend.

Purchaser interest ranges between those already established in the hotel industry and also outside buyers looking to gain entry for the first time. Many buyers see the potential to capitalise on loss-making properties and are motivated by the opportunities provided by the improved tourism sector in Ireland.

Occupancy levels and RevPARs (Revenue per available room) of well-located properties have risen each year since 2010, while ARRs (Average Room Rate) have increased successively since 2011. Key findings in Crowe Horwath’s 2013 Annual Irish Hotel Industry Survey show that Room Occupancy and ARR levels increased on an annual basis by 2.4% and €2.05 respectively, while RevPAR increased by €3.05 to stand at €47.67, driven mainly by increased occupancy and ARR levels. This said, ARR levels still remain low by historical comparisons – the average room rate at the peak in 2007 stood at €97.69.

According to PwC’s European Cities Hotel Forecast 2014 and 2015, Occupancy levels in Dublin saw a surge in the past year and surpassed pre-recession levels, rising from 67% in 2008 to

78.7% in 2013 and are forecast to increase to almost 80% this year and into 2015. ARR in Dublin is expected to increase from €89.30 in 2013 to €93.60 and €96.50 in 2014 and 2015 respectively. Furthermore, RevPAR in Dublin saw the largest increase in Europe

in 2013 of 11%, to stand at €70.30, while Dublin has the strongest growth forecast for 2014 of the European cities studied. A lack of new supply and strong demand is expected to drive RevPAR in 2014 and 2015 by 5.2% and 3.8% respectively.

Dublin’s growing recognition as the “technology hub of Europe” as well as a leading location for internationally traded financial services means that there is significant international interest in the opportunities in the economy and this is evident in the increase in hotel transactions in the Dublin market in recent years.

An analysis of the proportion of foreign buyers in the first half of 2014 saw the US dominate with a 77% share of the total hotel sales market and almost €156 million worth of hotel assets purchased. This was followed by European buyers, accounting for approximately 15% of the total spend. The remaining hotels were purchased by investors from South Africa, Northern Ireland, China and the Middle East. Cross border investment activity is being led by leading international players such as John Malone, Donald Trump and Kennedy Wilson. The number of repeat buyers in 2013 and 2014, both internationally and within Ireland, is a positive sign and one which bodes well for future interest in the Irish hotel market.

An analysis of the type of asset sales in the hotel market reveals that the majority of hotels sold in the year to date, as per the value of hotels sold, were Trading Asset Sales, 60%, while Loan Sales accounted for 37% and Asset Sales, 3%. That said, one large deal has the ability to skew transaction volumes, as €111 million worth of loans tied to only one hotel, The Shelbourne, accounted for the total value of loan sales while trading asset sales accounted for 19 hotel transactions in the six month period.

Figure 6

Origin of Buyers, H1 2014


Figure 5

Domestic v International Buyers, H1 2014


Occupancy levels in Dublin have surpassed pre-recession levels


Hotel Supply

A number of hotels were sale agreed in recent months, including the 5 star Aghadoe Heights in Killarney for €6.5 million; 5 star Heritage Golf & Spa Resort in Killinard for €5.5 million; the Metro Hotel and Apartments Dublin Airport for €5.5 million; the 4 star Charleville Park Hotel in Cork for €4 million; the Fitzwilton Hotel in Waterford in excess of €3 million and the Cavan Crystal Hotel for €2.5 million.

There is also a healthy supply of hotels in the pipeline as a result of NAMA and the banks’ ongoing deleveraging. NAMA are set to capitalise on the international interest by bringing several prime hotels to the market throughout 2014 and into 2015, particularly in Dublin. Of the 208 hotels worldwide that have been secured on NAMA loans, 136 of them are in Ireland. NAMA has sold 19 Irish hotels to date, recovering proceeds of €237 million; while 101 hotels have yet to be released, representing 12% of all Irish hotels. Of the 136 hotels secured by NAMA in Ireland, almost half are focussed in Dublin.

Hotels that have come to the market recently include three hotels in NAMA’s first hotel portfolio - Project Venue – which consists of the Malton in Killarney, the Gresham Metropole in Cork and the Kilkenny Ormonde Hotel. These three premises are on offer as individual lots or as a collective portfolio. The Savoy Hotel in Limerick city, guiding €3.75 million, was also launched recently as part of the City Central portfolio which includes residential and commercial properties in Limerick city, and is being offered for sale as an individual lot or as part of the entire portfolio.

Figure 7

Hotel Sales Volume by Asset Type, H1 2014


Other hotels being offered for sale include the Maldron Hotel City West, guiding €3.75 million; Dublin Citi Hotel, 46/59 Dame Street, guiding €3 million; the 3 star Central Hotel in Tralee, guiding €1 million; the Tallaght Cross Hotel; the Middleton Park House in Westmeath, guiding €1 million; the Letterkenny Court Hotel, guiding €900,000; the Glencarn Hotel in Castleblayney, guiding €750,000 and the Pontoon Bridge Hotel in Mayo, guiding €550,000. The 3 star George Boutique Hotel in Limerick city is currently under offer significantly above the guide price of €3 million. Furthermore, there have been market reports that the Premier Inn in Swords and Waterford Castle will be offered for sale shortly.

Another portfolio – Project Nadal - consisting of approximately 10 hotels is due to be brought to the market by Ulster Bank in the coming weeks, a move which is part of a wider deleveraging program by Ulster Bank which should see the disposal of their entire portfolio of approximately 40 hotels. Project Nadal includes two hotels already being operated by Dalata Hotel Group; Whites of Wexford and the Clayton Hotel in Galway.


New Development

Renewed investor confidence has revived interest and activity in hotel development

Since the onset of the downturn, there has been very little hotel development with the exception of two Dublin city hotels, The Gibson Hotel in 2010 and The Marker Hotel in 2013. However, renewed investor confidence and improved trading conditions have revived interest and therefore activity in hotel development, particularly in Dublin.

Planning permission is being sought for several more hotel extensions and redevelopments for 2014. Construction has commenced on the development of the Dean Hotel, Harcourt Street, Dublin 2, for an estimated €3 million.

Planning permission has been granted for a 165-bedroom hotel development on Camden Street, Dublin 2 for an estimated €8.65 million. Planning has also been granted for the development of

20 suites at the Merrion Hotel, Dublin 2 for an estimated €9.5 million. Planning for a hotel extension, which will include 20 bedrooms, at the Russell Court Hotel, Harcourt Street, Dublin 2 for an estimated €9.2 million;

and planning for the conversion of Findlater House, O’Connell Street, Dublin 1 to a 198-bedroom 3 star hotel costing an estimated €2.7 million were both given the green light. Moreover, Dalata Plc have announced that they intend to plan further hotel developments in Dublin.

Planning permission has been refused for 170 bedrooms in the former Ormonde Hotel on Dublin’s Quays; while similarly, initial permission for a 130-bedroom hotel development in the former Irish Lights building on Pembroke Street was also refused by An Bord Pleanála.

Development outside of Dublin includes the Kingsley Hotel, Cork, which is due to reopen as a 4 star hotel this summer.


Outlook for the Future

The first six months of 2014 witnessed strong performance in the Irish hotel market. The total value of hotel acquisitions for the year 2014 is estimated at present to be in the region of €350 million, however, this could potentially be closer to €400 million with a large number of high value properties due to come to the market in the autumn. Strong performance is expected to continue into the latter half of 2014 with a number of hotel sales agreed in recent weeks.

Despite the uplift in the hotel industry, there exists some potential challenges for hoteliers and investors. Debt remains the key issue which must be addressed in order for hotels to be at a level that is sustainable. A potentially high VAT level could be a fundamental threat to smaller hotels, eroding their profitability and thereby challenging the continued improvement of the hotel sector. Furthermore, the IHF has called for a 30% reduction on local authority rates; these rates are the biggest single cost that hoteliers have no control over and is a threat to the Irish tourism sector’s ability to compete effectively in both the domestic and overseas markets. The lack of capital expenditure is also a challenging feature, as hoteliers may be allocating their profits for debt repayments rather than for investment and refurbishment purposes, which overtime would diminish the quality of hotels in Ireland. Moreover, while the Irish economy is on the path to recovery, any downturn or upheaval in the Eurozone economy can be a potential threat to Ireland’s recovery and in turn, this would negatively impact the Irish tourism sector.

This said, the significant growth and recovery that is evident in both the hotel industry and the tourism sector bodes well for the overall wider economic recovery, in particular for employment levels in the industry given the labour-intensive nature of the business.

In addition, “the Wild Atlantic Way” was officially launched in February; Failte Ireland plans to invest €10 million in 2014 promoting the 2,500km coastal driving route which stretches from Cork to Donegal. This is viewed as a long-term investment strategy to sustain tourism levels.

The recent announcement by the government that the current Capital Gains Tax (CGT) exemption will not be extended after December 31st 2014 should influence hotel sales activity for the remainder of the year as vendors will push to ensure hotel sales are completed by year end.

The strong momentum witnessed in the opening half of 2014 is expected to gather pace during the

latter six months given the high level of demand from both domestic and international investors

Kirsty Rothwell, Head of Hotel Solutions DTZ Sherry FitzGerald

This report should not be relied upon as a basis for entering transactions without seeking specific, qualified, professional advice. It is intended as a general guide only. This report has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. While reasonable care has been taken in the preparation of the report, neither Sherry FitzGerald nor any of directors, employees or affiliates guarantees the accuracy or completeness of the information contained in the report. Any opinion expressed (including estimates and forecasts) may be subject to change without notice. No warranty or representation, express or implied, is or will be provided by Sherry FitzGerald, its directors, employees or affiliates, all of whom expressly disclaim any and all liability for the contents of, or omissions from, this document, the information or opinions on which it is based. Information contained in this report should not, in whole or part, be published, reproduced or referred to without prior approval. Any such reproduction should be credited to DTZ Sherry FitzGerald.

About DTZ Sherry FitzGeraldDTZ Sherry FitzGerald is the sole Irish affiliate of DTZ, a global leader in property services. With Irish offices in Dublin, Cork, Galway, Limerick and an associated office in Belfast, we are the largest commercial property advisory network in Ireland and are part of Sherry FitzGerald Group, Ireland’s largest real estate adviser.

We provide occupiers and investors around the world with best-in-class, end-to-end property solutions comprised of leasing agency and brokerage, integrated property management, capital markets, investment, asset management and valuation. www.dtz.ie

© 2014

AUTHORSMarian FinneganChief Economist, DirectorResearch+353 (0) 1 237 [email protected]

Deirdre O’ReillyResearch Graduate+353 (0) 1 237 [email protected]

Kirsty RothwellHead of Hotel Solutions+353 (0) 1 639 [email protected]

Irish Hotel Market Review - WordPress.com...hotels in Dublin; of this, 11 hotels are 5 star, 45 hotels are 4 star and 72 hotels are 3 star, with the remaining 25 hotels 2 and 1 star

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