Crowe & JLL 2024 Annual Hotel Market Briefing

2024 Annual Irish Hotel Market Briefing

After two years of solid trading following the two Covid-19 pandemic years, the hotel sector has regained the confidence of funders and investors.

Crowe & JLL 2024 Annual Hotel Market Briefing

JLL joined Crowe as co-host for this year’s Irish Hotel Sector Briefing on Thursday 1 February 2024 in the Intercontinental Hotel in Ballsbridge, Dublin 4. We were delighted to welcome over 200 industry guests at this in-person breakfast event. The briefing addressed the theme of opportunities to invest in a sector that is resilient in the short term and has excellent growth prospects over the medium term.

Aiden Murphy, Partner, Crowe
Weldon Mather, Director, Hotel Tourism & Leisure, Crowe
Dan O’Connor, Executive Vice President – Hotels, JLL

Guest speaker:
Keith Evans, Founder, LHC (London-based Lifestyle Hospitality Capital)

The full presentations can be downloaded below.

Crowe partner Aiden Murphy noted that the hotel sector in Ireland is back on a solid footing, having achieved EBITDAR profits in excess of pre-pandemic levels for two consecutive years. The results of the Crowe Ireland Annual Hotel Industry Survey 2023 illustrate that the Irish market was one of fastest to bounce back in Europe in 2022 and that 2023 has built on that momentum. Rooms revenue is well ahead in a marketplace where pre-pandemic occupancy levels have been exceeded, with the real driver being average room rate which is up €36 for Dublin between 2019 and 2023 and €39 for Regional Ireland over the same four-year period. Average room rate growth between 2022 and 2023 for Dublin was €9, taking the ARR from €169 in 2022 to €178 for 2023, while for Regional Ireland the equivalent metrics were an increase of €8 from €133 in 2019 to €141 in 2023. The excellent performance in the rooms department compensated for and covered the very significant increases in costs across all business activities.

For 2024, the increase in VAT rate from 9% to 13.5% will make it challenging for hotels to maintain the momentum of growth in average room rate. In the year following the last time the VAT rate was similarly adjusted, the average room rate for Dublin hotels fell by €3 and for Regional Ireland hotels by €2 as the vat take for the Government was higher than what could be passed onto customers.

The hotel sector, being very labour-intensive, will in 2024 likely see loss of payroll efficiency as the impacts of new employment legalisation and wage agreements feed through. This will become a drain on profit and profit margins in a year where costs could continue to increase at a faster pace than revenues, as there is less potential to grow revenues especially after two years where strong demand recovery has already occurred.

While the opportunity to again grow profits in 2024 will be muted by cost pressures, the established profit levels achieved in the last two years provide cash flow to invest and to borrow to invest. Crowe noted that there is a change in approach to ESG from something that has been voluntary to a core requirement that will be mandated by legislature and contractual relationships. Aiden Murphy advised that this needs to be a priority for all hotels and not simply left to the larger operators. Investment in people who can deliver on this agenda will protect the business and enhance profit levels and asset value. There will need to be willingness to take a cost hit upfront, but the returns will quickly be obvious as the hotel sector adjusts to the trickle-down of ESG regularity requirements as we move towards the 2030 deadline for the hotel sector in Europe to deliver a 50% reduction in its carbon footprint.

Dan O'Connor, Head of Hotels & Living, JLL pointed out that, compared to other commercial real estate sectors in 2023, hotels outperformed both in terms of deal volume and price.

Looking back over 2023 transaction activity, the year started strongly with approx. €100m of Irish hotel sales in Q1 2023 alone, the largest being Tulfarris Hotel & Golf Resort. In Q2, the average deal size increased, with major urban hotels such as Brooks Hotel in Dublin and the Imperial in Cork changing hands. In Q3 and Q4, Northern Ireland took centre stage with the sale of the Hilton Belfast followed by the Radisson Belfast. The Hilton transaction set a new per-key value benchmark for Belfast City Centre. Furthermore, a number of high-profile hotel sites changed hands in 2023, not only in Dublin but also in Cork and Galway. Leading operators such as JMK Group and Premier Inn led the way as site buyers, continuing to expand across Ireland.

Deal volumes in 2023 ended up at slightly over €300m, however Q4 2023 transaction volume was low with only two major deals closing and many transaction slipping into 2024. Most significantly, major big-ticket deals such as Press Up Group, Tifco Hotel Group and The Shelbourne all launched or exchanged in Q4, and the conclusion of these transactions will boost the 2024 deal volumes.

"Based on current live transactions and our solid pipeline, we forecast Irish hotel deal volumes to reach €750m in 2024. This is more than double 2023 levels and so we are indeed expecting a record year in terms of Irish hotel deal flow."

Guest speaker Keith Evans is the Founder, CEO and Chairman of the Investment Committee of Lifestyle Hospitality Capital (LHC). He has over 20 years of industry experience as a global real estate investor, asset manager, financier, C-suite and board member. Keith has transacted on over $4bn of hospitality real estate and M&A, having operated in over 25 countries across Europe, the US and Emerging Markets. He was previously Chief Investment & Development Officer for Ennismore, which merged with Accor in 2021. Before that he was Senior Vice President – European Hotel Acquisitions at Starwood Capital and previously worked at Kingdom Hotel Investments and Invesco.

LHC Group's acquisition of a majority stake in The Dean Hotel Group was driven by the quality of the real estate portfolio, strength of the Dublin market and the platform's potential for growth.

Founded in 2023, comprising former associates of Starwood Capital and Ennismore, LHC's strategy is focused on platform acquisitions and value-add real estate investments within lifestyle hospitality and operational real estate. Keith notes the acquisition of the Dean Hotel Group as an example of all the elements set forward in its investment strategy.

"We saw with The Dean acquisition and partnership, as a best-in-class hospitality operational real estate platform which is leading the way in lifestyle in Ireland, with a strong footprint in Dublin, a market with the highest occupancy in the EU compset and solid fundamentals going forward.

"We are also looking at significant value-add opportunities within the portfolio, for example adding c. 100 new rooms in three of the eight assets – The Clarence Hotel, The Dean Dublin and the Glasson Lakehouse. We intend to significantly scale up the existing platform outside of Ireland, including opportunities in gateway cities across Europe and the US. The lifestyle hospitality market, we think, has vastly untapped potential to grow both in urban and resort markets."

How we can help

Crowe is Ireland's leading consultancy practice serving the hotel, tourism and leisure industry. We have an unmatched depth of knowledge of the sector. We regularly assist in the sale, acquisition and development of hotel, tourism and leisure businesses – acting for owners, developers, financial institutions and industry stakeholders. Our dedicated Hotel, Tourism & Leisure division (Horwath HTL) is the oldest and largest hotel and tourism consultancy practice in the world and is a member of UNWTO. Since 1995 Crowe has produced the Ireland Annual Hotel Industry Survey, which serves as a benchmarking tool for the sector and provides analysis by region, classification and hotel size. We work closely with our international HTL colleagues to bring you solutions through a combination of international experience and expert local knowledge.

Crowe has extensive buy-side and sell-side experience and we regularly support investors and funders in completing due diligence, appraisals and valuations for hotel acquisitions. To find out more about how we can help you make smart decisions today that create lasting value for your business, contact a member of our HTL team.

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Crowe & JLL 2024 Annual Hotel Market Briefing

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Naoise Cosgrove, Managing partner - Crowe Ireland
Naoise Cosgrove
Managing Partner
Corporate Finance
Partner, Corporate Recovery - Crowe Ireland
Aiden Murphy
Corporate Recovery
Weldon Mather, Director of HTL, Crowe Ireland
Weldon Mather
Director, Hotel, Tourism & Leisure