2022 Annual Irish Hotel Market Briefing
Post-pandemic: Hotel sector recovery in a changed world.
Speakers (L:R): Dan O'Connor, EVP, JLL, John Brennan Chairman Klarent Hospitality and Aiden Murphy, Partner, Crowe.
JLL joined Crowe as co-host for this year’s Irish Hotel Sector Briefing on Tuesday 4 October 2022 in the Intercontinental Hotel in Ballsbridge, Dublin 4. Returning as an in-person event after the pandemic, we were delighted to welcome over 120 industry guests at this breakfast event. The briefing addressed the theme of Post-pandemic: Hotel sector recovery in a changed world.
Speakers:
Aiden Murphy, Partner, Crowe
Dan O’Connor, Executive Vice President – Hotels, JLL
Guest speaker:
John Brennan, Chairman at Klarent Hospitality
The full presentations can be downloaded below.
Crowe partner Aiden Murphy noted that the bounce back for hotel trading performance in 2022 is remarkable considering we started the year under travel restriction conditions. There would have been widespread solvency issues for Ireland’s hotels if the Government had not quickly introduced payroll and other cost supports, which included €780m in payroll underwrites and €180m from the Covid Response Support Scheme, alongside other grants availed of during 2020 and 2021. The continuation of payroll supports up to the end of April 2022 provided a foundation for hotels to rebuild their teams and regain some operational efficiencies while avoiding making losses as the sector ramped up in the early months of 2022.
The release of pent-up demand has meant hotels have seen occupancy levels return to pre-pandemic levels.
The big step change is the higher Average Room Rates, with those in Dublin forecast to be up €18 on 2019 levels to €160 and Regional Ireland Average Room Rates forecast to be up €32 on 2019 levels to €133. While these increases look high at first glance, Crowe believes they are at levels necessary to cover the significantly increased cost of doing business which hotels now face.
Unless the costs of operations come down, we are likely to see the current prices forming the new baseline in hotel room prices. Considering the trajectory of rising payroll costs (including a higher minimum wage, which is going up by 8% in January 2023) and that payroll at 35% of revenues was the largest single outgoing for hotels pre-pandemic (likely to be over 40% in 2022 and 2023), the prospect of cost reductions and bringing down room prices any time soon is remote.
The rate of VAT on room sales was put up to 13.5% for 2019, having been at 9% for the previous seven years. Weakening market conditions in 2019 actually meant that hotels were not able to pass on the higher VAT cost and had to absorb a drop of €4 on their average room rates, which had a direct hit on their operating profits.
Many hotels have had to defer capital reinvestment projects and hotels now fear that the scheduled increase in VAT to 13.5% at end of February 2023 will be challenging to pass on, and will damage their recovery prospects and reduce investment in the sector.
Speakers:
Aiden Murphy, Partner, Crowe
Dan O’Connor, Executive Vice President – Hotels, JLL
Guest speaker:
John Brennan, Chairman at Klarent Hospitality
The full presentations can be downloaded below.
Crowe partner Aiden Murphy noted that the bounce back for hotel trading performance in 2022 is remarkable considering we started the year under travel restriction conditions. There would have been widespread solvency issues for Ireland’s hotels if the Government had not quickly introduced payroll and other cost supports, which included €780m in payroll underwrites and €180m from the Covid Response Support Scheme, alongside other grants availed of during 2020 and 2021. The continuation of payroll supports up to the end of April 2022 provided a foundation for hotels to rebuild their teams and regain some operational efficiencies while avoiding making losses as the sector ramped up in the early months of 2022.
The release of pent-up demand has meant hotels have seen occupancy levels return to pre-pandemic levels.
The big step change is the higher Average Room Rates, with those in Dublin forecast to be up €18 on 2019 levels to €160 and Regional Ireland Average Room Rates forecast to be up €32 on 2019 levels to €133. While these increases look high at first glance, Crowe believes they are at levels necessary to cover the significantly increased cost of doing business which hotels now face.
Unless the costs of operations come down, we are likely to see the current prices forming the new baseline in hotel room prices. Considering the trajectory of rising payroll costs (including a higher minimum wage, which is going up by 8% in January 2023) and that payroll at 35% of revenues was the largest single outgoing for hotels pre-pandemic (likely to be over 40% in 2022 and 2023), the prospect of cost reductions and bringing down room prices any time soon is remote.
The rate of VAT on room sales was put up to 13.5% for 2019, having been at 9% for the previous seven years. Weakening market conditions in 2019 actually meant that hotels were not able to pass on the higher VAT cost and had to absorb a drop of €4 on their average room rates, which had a direct hit on their operating profits.
Many hotels have had to defer capital reinvestment projects and hotels now fear that the scheduled increase in VAT to 13.5% at end of February 2023 will be challenging to pass on, and will damage their recovery prospects and reduce investment in the sector.
Dan O’Connor, Executive Vice President – Hotels, JLL pointed out that despite market uncertainty, the Irish market has seen over €360M of hotel investment volumes so far this year and is on track to exceed €500M of completed deals by year end. This is a 25% increase versus 2021 levels.
Whilst private equity buyers are impacted by rising debt costs, Irish hotels are still transacting regularly, with hotel operators, institutional and private buyers remaining active.
We expect the next few quarters to present some exciting hotel acquisition opportunities, particularly for those buyers who are in funds and have foresight to see through the short-term market disruption.
Guest speaker John Brennan, Chairman, Klarent Hospitality, spoke about the relative stability of the Irish hotel sector compared to the UK, which is struggling through a period of increased volatility at present.
With the current cost pressures the industry faces, he stressed the need for greater innovation and capital investment to tackle the demands of inflation and the ESG agenda.
He noted that over the next year the sector would be impacted by ongoing cost pressures and concerns that reductions in disposable income will cause a pullback on travel, which would limit revenue growth at a time when costs are rising. He believes the main gain for average room rates has been achieved for 2022 and, while there was scope for further increase in 2023, the level of increase was unlikely to cover the cost increases that businesses are anticipating.
Brennan asserts that hotels remain an attractive asset class for investment and coming out of the Covid period are seen as more resilient than retail or offices.
Finally, he outlined two key factors for successful hotels in the current climate as being people and culture. Hotels will need to deliver a strong customer experience for their guests and a people-centric ethos in terms of both employees and guests will be important if they are to trade through the current challenges.
For more information about how Crowe’s dedicated hotel, tourism and leisure team can assist you with any hotel or hospitality project, contact a member of our HTL team.
Whilst private equity buyers are impacted by rising debt costs, Irish hotels are still transacting regularly, with hotel operators, institutional and private buyers remaining active.
We expect the next few quarters to present some exciting hotel acquisition opportunities, particularly for those buyers who are in funds and have foresight to see through the short-term market disruption.
Guest speaker John Brennan, Chairman, Klarent Hospitality, spoke about the relative stability of the Irish hotel sector compared to the UK, which is struggling through a period of increased volatility at present.
With the current cost pressures the industry faces, he stressed the need for greater innovation and capital investment to tackle the demands of inflation and the ESG agenda.
He noted that over the next year the sector would be impacted by ongoing cost pressures and concerns that reductions in disposable income will cause a pullback on travel, which would limit revenue growth at a time when costs are rising. He believes the main gain for average room rates has been achieved for 2022 and, while there was scope for further increase in 2023, the level of increase was unlikely to cover the cost increases that businesses are anticipating.
Brennan asserts that hotels remain an attractive asset class for investment and coming out of the Covid period are seen as more resilient than retail or offices.
Finally, he outlined two key factors for successful hotels in the current climate as being people and culture. Hotels will need to deliver a strong customer experience for their guests and a people-centric ethos in terms of both employees and guests will be important if they are to trade through the current challenges.
For more information about how Crowe’s dedicated hotel, tourism and leisure team can assist you with any hotel or hospitality project, contact a member of our HTL team.
Download presentations:
