Wednesday 27 March 2019

Hotel sales could hit €1bn this year but the market is changing fast

The Gresham
The Gresham

Paul McNeive

The booming hotel market is making the news and two upbeat reports have been released this week. A plethora of new international buyers and the growing economy are among the factors driving the sector. To get a feel for the trends, I spoke with Paul Collins, the Head of Hotel Brokerage UK and Ireland at CBRE and hotel specialist Aiden Murphy, Partner at Crowe Horwath, chartered accountants.

Collins describes the Dublin market as "red hot" and an under-supply of hotel rooms is driving occupancy levels and room rates. A combination of factors mean that Dublin hotel RevPAR (a blend of occupancy levels and room rates) was ranked the third best performing in Europe last year by international research company STR. Collins told me that Dublin hotels saw double digit RevPar growth last year and he predicts the same for this year and next.

Driving this growth are the strengthening domestic economy and record numbers of tourists - particularly from the US, driven by the strong dollar. There are strong visitor numbers from continental Europe and UK business was booming.

It has been a rapid turnaround since 2009, when only two hotels were sold in Ireland and Collins says the Dublin market is no longer distressed.

"It's a very international market" he told me. "It's getting stronger and stronger, and new buyers appear for every hotel we bring to the market."

Last year saw an extraordinary €700m worth of hotel sales in Ireland and while agents are reluctant to commit to it, we could threaten the €1bn level this year.

There were €137m of sales reported in the first six months. However, when one adds in The Gresham (excess €90m), The Doubletree (approx. €180m) and the package of The Beacon, The Morgan and The Spencer (understood to be close to €150m), along with other bubbling deals, we may be into new territory.

Strong prices are tempting both owner operators and investors to go to the market and with values now exceeding building costs, unsurprisingly there is a surge of new developments and planning applications.

A handful of Dublin hotels are also building extensions. There are approximately 10,000 hotel rooms in the city centre, and a further 10,000 on the M50 corridor. Fáilte Ireland say that we need another 5,000 rooms and the terrorism threat in Europe has added further to Irish demand, particularly for international conventions.

Provincially, Paul Collins told me that conditions are improving, but there is "still quite a bit of distress and a number of hotels to be sold over the next 24 months".

An interesting development is the emergence of Chinese buyers availing of Irish residency permits by investing over €500,000 in a business. There have been a handful of sales on the west coast, in the €500,000-€2m bracket.

Collins says Brexit can boost the Irish market as several buyers are pausing on deals in the UK and looking at Ireland as a secure and liquid market.

Aiden Murphy echoed the strength of the luxury market.

"Dublin has 41pc of Irish five-star hotel rooms" he told me. "Occupancy levels are in excess of 80pc and the average luxury room rate has increased by €22, year on year, to an average of €181."

I queried if there has been a downgrading of brands in Ireland, for example, Four Seasons left Ballsbridge, Hilton/Conrad exited Mount Juliet, Hilton left Mount Wolesley, Marriot departed Druids Glen and Ritz Carlton left Powerscourt.

Murphy said several hotels repositioned to avoid paying high fees for use of a brand, but points out that turnover for the midlands and east hotels is up 17pc.

He highlighted the growing separation between hotels owners and the management/branding.

"Owners now tend to be property investors, and an advantage is that owners get an increase in their net income, every year, under management agreements, compared with five-yearly rent reviews elsewhere. They will be looking at strengthening yields and some will be planning their exit."

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