Crowe and Cushman & Wakefield hosted a joint breakfast briefing on the Irish hotel sector in the Conrad Hotel on Thursday 3 October 2019. The briefing addressed the changing landscape of the Irish hotel industry and the international and domestic factors shaping the sector.
Speaking to 200 industry guests were Aiden Murphy, Partner, Crowe and Isobel Horan, Director, Cushman & Wakefield. They were joined on the stage by special guest speaker Guy Pasley-Tyler, Director from hotel real estate investors, Archer Hotel Capital.
The full presentations can be downloaded below.
Crowe Partner, Aiden Murphy discussed the trading environment for the hotel sector and specifically the impacts of new supply and the increase in the VAT rate on Dublin hotel profits.
He outlined that Dublin hotels will in 2019 be hit with €40 million revenue loss due to VAT hike from 9% to 13.50% on rooms and food sales. While the sector has had the benefit of the low rate since 2012 and has re-invested heavily to improve the quality of the hotel stock, the change in VAT will be felt most in 2019 as hoteliers grapple with how to pass on this VAT cost to customers.
The average EBITDAR per room for a Dublin hotel in 2018 was €24,818 and so a 100-bedroom hotel could see EBITDAR profits fall from €2.48 million to €2.28 million as a result of the VAT hike and so must take measures to mitigate this potential loss.
Aiden discussed the supply of new hotel rooms. He outlined that from 2013 to 2018 supply only increased by 3% while demand was up 13%. In 2018 this resulted in Dublin hotels having over 90% occupancy for at least 140 nights of the year. This led to guests being turned away and also upward pressure of rates as hotels prioritised the higher-spending guest segments.
From 2019 to 2024, the Dublin market will see 6,000 new rooms being added to the current 19,000 as of the start of 2019 – a 30% increase over this five-year period. With this level of supply, it is expected that hotels will see occupancy levels dip and greater competition will limit the growth of average room rates to low single digit annual increases.
Aiden also outlined the growth of the apart-hotel offering in the capital. Over the course of the next three years some 1,400 rooms will be added to Dublin’s capacity which equates to around 30% of new stock planned in that period. That marks a significant structural change to the market.
The growth in technology in the sector and the change in customer requirements means there is less requirements for labour-intensive services, making apart-hotels more cost effective. This pricing model in turn makes it more attractive for longer-term stays required for the corporate market.
Isobel Horan of Cushman & Wakefield outlined that hotel transaction activity for the third quarter of this year continues to be strong and remains on target to be ahead of last year and 2017. For the three months to end September transactions totalled €220m and particularly noteworthy is an emerging trend of 5-star/luxury products transacting in the current market.
While the market continues to perform well, the volume of transactions since 2014 has fallen by 80% but with the number of distressed sales that occurred at that time masks the reality of more normalised market where there are fewer transactions with a higher value reflective of a high quality and profitable stock.
The Irish Market remains an attractive investment proposition to new buyers, both domestic and international. With interest from potential investors high it is a timely opportunity for owners of quality and profitable assets to benefit from an active market.
Guest speaker Guy Pasley-Tyler, Director, Portfolio & Fund Management, Archer Capital, which manages a portfolio of high quality European hotels valued at €2bn, said that the Archer Hotel Capital team strongly believes in the long-term potential of the Dublin hotel market and is actively seeking investments in the city in order to further diversify its portfolio.
Dublin’s high proportion of international visitation and strong links with the US economy would be complementary to other assets in the Archer portfolio and may enable the Dublin market to out-perform other similar-sized European cities over the long-term, notwithstanding any short-term challenges.
Read the executive summary of the Crowe 2019 Irish Hotel Industry Survey
For more information about how Crowe’s dedicated hotel, tourism and leisure team can assist you with any hotel of hospitality project, contact a member of our HTL team.