Business Irish

Friday 15 December 2017

Dalata chief warns high costs and loan curbs will lead to hotel room crisis

Dalata chief executive Pat McCann
Dalata chief executive Pat McCann

Gretchen Friemann

Dalata Hotel Group head Pat McCann has warned of a looming supply crunch in the sector as high land valuations, rising construction costs and banks' reluctance to lend chokes off new developments.

He predicts that by 2020 Ireland will fall well short of the required 3,750 new hotel rooms needed to meet the surging demand.

His comments followed the publication yesterday of a report into the sector by Davy stockbrokers.

It highlighted that Mr McCann's more bearish assumptions were at variance with projections made by Paul Collins, head of hotels at the real estate agency, CBRE.

However Davy analysts noted that of the two, Dalata has the better track record "in calling the scale of new supply".

In an interview with the Irish Independent Mr McCann said that up until 2018, Dalata would continue to add about 1200 new rooms annually to its Irish portfolio.

But he claimed the company's focus would shift to the provincial UK market in the following two years, given the lower costs of entry and "higher returns".

While McCann acknowledged CBRE's supply predictions would help match the increased demand, amid an upsurge in tourist numbers, he claimed the "economics" pose an obstacle to greater scale in the sector.

"We all agree Dublin needs more hotels but two things have happened in the past few years: site pricing has increased and so has building inflation," he said. "That makes it more uneconomical to develop hotels."

Mr McCann stressed that some banks now demand a 50pc equity injection in to hotel projects - an observation he also made in Davy's report.

He also cast doubt on the ability of mezzanine lenders to breach the funding gap, claiming non-bank lenders will scrutinise hotel developments as keenly as the banks.

Mr McCann played down expectations of higher room rates on the back of the persistent supply imbalance, arguing the market must remain competitive."

Irish Independent

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