Last year was one where 'big got bigger' and 'small was beautiful' when it came to activity in the Irish hotel sector. Hotel transaction volumes for the last 12 months are expected by JLL to reach an impressive €750m by year end.
While this represents a substantial increase of 36pc on the €550m recorded in 2017, it is, more importantly, a real sign that Irish hotels are no longer considered to be 'alternative investments'. They are now very much 'mainstream'.
One outstanding feature of the hotel market in 2018 was that the big deal became bigger, to the point where two major portfolio sales ended up accounting for more than 55pc of total transaction volumes.
The largest portfolio sale involved the Tifco Hotel Group, Ireland's second-largest hotel operator, which sold in Ireland's most-valuable hotel transaction ever.
Totalling 19 hotels and development sites, it was acquired by Apollo Global Management for approximately €350m.
The other large portfolio transaction of 2018 saw a group of Irish and UK Hilton hotels, including the Hilton Garden Inn in Dublin's IFSC, acquired for more than €110m by LRC Group.
There were also a healthy number of single asset transactions in the Dublin hotel market. These included the sales of the Hilton Dublin Airport, which sold for €23m, and the Ibis Dublin Red Cow, which sold for €14m.
Notably, all of the above transactions involved new international buyers, with their capital originating from the US, Israel, Canada and the UK respectively.
Another interesting development for the Dublin hotel market came last September, with leading institutional investor Aviva's €17.5m acquisition of the Premier Suites Plus aparthotel in Ballsbridge, Dublin 4.
The sale and leaseback deal with the 49-unit property's previous owners, the Prem Group, represented the first foray of Aviva's Irish Property Fund into Ireland's hospitality and aparthotel market. Outside the capital, a number of provincial hotels were sold in 2018. The bulk of these transactions involved domestic investors and operators with an established presence in the market.
Examples included the McWilliam Park Hotel in Mayo which was acquired for €9.2m by Davy Real Estate, and the Radisson Blu in Sligo which was acquired for €16.5m by iNua Hospitality. Other hotels sold outside of Dublin included the Heritage Hotel & Spa in Killenard, Co Laois. The five-star property was acquired by FBD Hotels and Resorts for a figure in the region of €9m.
The €17m sale of the five-star Sheen Falls Lodge in Kerry proved to be the most valuable provincial hotel sale of 2018, achieving a price per room of €250,000.
As the new year gets under way, a number of major hotel resorts including the K Club and Druids Glen are understood to still be in search of new owners. The vendors are guiding prices in the region of €80m and €45m respectively for these properties.
The outlook for the Irish hotel market in the short to medium term is set to be influenced by several factors, including the supply and design of guest rooms.
2018 saw the first meaningful increase in hotel room stock in the Dublin market since the financial crisis, with some 1,500 new Dublin rooms opening for business.
Failte Ireland now expects a total of 5,000 new Dublin hotel rooms to come on stream by the end of 2020.
But while this represents a welcome 26pc increase in current room supply, Failte Ireland believes the market will still experience a supply shortfall of 1,100 guestrooms by the end of 2020.
And while the hotel room supply pipeline grew bigger in 2018, the size of guestrooms being delivered started to become much smaller.
In the budget sector for example, the UK's largest hotel operator, Premier Inn, signed a pre-let on South Great Georges Street in 2018, a project which is now under construction.
In addition, one of Dublin's newest hotel openings, the Devlin Dublin, recently launched with 40 'snug' and hi-tech guestrooms.
Boasting what it describes as "everything you need, and nothing you don't", the Devlin also houses a number of restaurants and bars, including the Americana Bar and Layla's Restaurant, Dime Coffee and a 44-seat private cinema under one roof.
Mixed fortunes for 2019
There are nevertheless challenges ahead for the hotel and wider tourism sector. The reintroduction in Budget 2019 of the 13.5pc Vat rate, coupled with continuing Brexit uncertainty and sterling weakness, all present risks.
As it stands now, Ireland has the sixth-highest Vat rate in Europe. There is little doubt that this will serve to hinder our sector's competitiveness and profits. Other cost pressures, including payroll and insurance costs, mean that some hoteliers will do well to hold current profit levels in 2019.
Adding to hoteliers' potential woes is the recent forecast by STR Global of a 3pc decline in Dublin RevPAR (revenue per available room) in 2019.
This anticipated fall in revenue is expected to come from the recent and ongoing increase in Dublin hotel supply, which in turn will negatively impact occupancy in the market.
Having said that, we at JLL firmly believe that the sheer strength and depth of Ireland's tourism and corporate demand levels will underpin steady growth again over the coming year, and lead to improved trading performance in the Dublin market particularly.
Sunday Indo Business