Wednesday 18 July 2018

The right moves: B&B sector paying price for summer letting of student accommodation?

Paul McNeive
Paul McNeive

Paul McNeive

There has been a wave of development of purpose-built student accommodation in Dublin over the last two years, fuelled by overseas investment, cheap sites and the entry of specialist providers into the Irish market.

Research by Knight Frank indicates that 14 schemes have been built since 2016, bringing the total number of beds to over 12,600, and a likely new total of 18,683 beds by the end of next year. Yet, this will still leave us badly under-provided by international standards and there appears to be scope for plenty more development.

However, this surge of new supply would now appear to be having a damaging impact on the bed & breakfast sector. It must surely also be affecting budget hotels, as student accommodation is often rented out to tourists, outside of college terms.

I was contacted by an experienced bed & breakfast operator who told me that their business has suddenly collapsed, since the second week in June. Their bookings are running at below the levels seen in the winter. They told me they contacted other operators in the sector, who also claimed to have suffered a sudden drop-off in their normal peak-time business.

They carried out some additional research and quickly found what they believe to be the answer - thousands of modern apartments/bed spaces have suddenly become available to tourists on websites such as booking.com, driving prices down.

For example, on this day last week, at the Aparto scheme on Dorset Street, an ensuite double room was available for €52 for the night. At Aparto's Binary Hub scheme in Dublin 8, an ensuite double room was €59. At the new Destiny Student Kavanagh Court scheme on Gardiner Street, an ensuite double room was €62 and the same operator was offering double rooms at their Mill Street, Dublin 8 property for €68.

The scale of business being done would appear to be huge, with booking.com showing that 440 bookings had been made, at just the above four schemes, in the previous 24 hours.

As my contact pointed out, many of these bookings will have been for larger groups, that is, for more than one room. For example, a four-bed apartment, sleeping eight, could be rented that night for €198 - that's less than €25 per person per night.

My source wondered how, after allowing for Vat at 9pc and the booking.com commission of 15pc (charged on the Vat-inclusive price), if the operators could be doing much more than breaking even, particularly given the cost of security and daily cleaning and washing.

I suspect it's the scale of the operations that answers that question. Many of these schemes provide hundreds of units. Also, many of the costs will be 'standing costs' such as rates, payable whether the rooms are occupied or not, so it makes sense to generate income all year round.

This student accommodation is of a high standard, particularly given how new it is, and many of the blocks offer numerous facilities including gyms, games rooms, free WiFi and a 24-hour front desk. They tend to be very centrally located - last year, Knight Frank estimated that 93pc of the new supply was in Dublin 1, 7 and 8. For comparison purposes, the bedrooms will generally be smaller than that found in a bed & breakfast, or budget hotel. However, whilst buildings usually provide some self-contained single-bedroom apartments, most are designed as two to four-bedroom units, with shared kitchen and living area spaces.

Operators require planning permission to rent out rooms on a nightly basis to non-students. Spokespersons for GSA and Aparto confirmed that their planning permissions permitted these lettings at all their developments.

Aparto pointed out that "the Irish market is uniquely flexible in that it does not insist on students taking all year leases, as the UK does. The benefit for students is that they don't have to pay unnecessarily, for out-of-term periods."

The Dublin City Development Plan supports the provision of high-quality, purpose-built student accommodation, and points out that the sector is removing thousands of students from the private rental market.

It appears to me that our growing student population will drive significant further development, although the council should also consider the potential economic impact the holiday-period letting of student accommodation may have on existing hospitality businesses.

Time now to book my holiday in Trinity College Dublin, where double rooms in August are from €70 per night.

Indo Business

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