Hotel shortage in Dublin damaging tourism

Despite a record-breaking 2015 in which the tourism industry took in more than €7.3bn, the future growth of the sector, which is credited with creating one out of every three new jobs, is being undermined because tourists in the capital are increasingly finding there is no room at the inn when booking holidays or package tours.

Dublin now has the highest hotel occupancy rate in Europe, averaging around 82pc.

And for the first time ever, demand for hotel accommodation in Dublin is close to or exceeding supply, according to ITIC chairman Paul Gallagher.

Like the residential property market, the collapse of the economy during the downturn and the inability of investors to secure development loans from banks and other hurdles has led to a dearth of new hotels coming on the market, which has in turn led to the demand for hotel beds exceeding supply.

Close to nine million tourists - approximately double the Irish population - visited here last year, with 85pc of them visiting Dublin.

Aside from 850,000 "day visitors", most of them would be looking for a hotel bed, which now costs an average of about €112 a night.

Yet, there are only so many that can be accommodated in the 19,000 hotel beds in Dublin, which means tourists are now having to book months in advance during peak times in order to secure a bed or else are booking hotels outside The Pale.

"Dublin is now so busy in peak season, it works as a barrier to growth," Mr Gallagher told the Sunday Independent.

"The shortage of rooms acts as a handbrake," he said.

Because only three new hotels have come or are about to come on stream in Dublin since 2007, there is a current shortfall of about 4,200 hotel rooms needed just to keep pace with current demand, Mr Gallagher said.

Under normal economic circumstances, about two or three new hotels with more than 200 rooms each would be built each year. But that hasn't happened for the past seven years, leading to the current shortage.

At the same time, record growth in the industry over the past two years due to a recovery in the global economy, the strength of the American dollar and British pound against the euro, a record number of international flights to Dublin and successful marketing initiatives, like The Gathering, has created a "perfect storm" making Ireland an attractive destination. But the success of the tourism market has even taken the industry by surprise, Mr Gallagher said.

"The recovery has been sooner than we anticipated and the speed of the recovery has been must faster than we anticipated," he said.

Tim Fenn, CEO of the Irish Hotels Federation, echoed his concerns.

While Dublin's loss of room revenue is a gain for the regions that are picking up some of the overflow, hoteliers in Dublin are now setting their sights to "attract the high-spend customer" in order to remain competitive due to other market issues, like high labour and other costs of business, he said.

Although room rates in the capital will invariably rise due to demand issues, he isn't worried the industry will return to Celtic Tiger-era prices. But we will still need "to see sustainable development" to meet future demand, he said.

However, some operators are starting to feel "the side effects of success", according to Ruth Andrews, CEO of the Incoming Tour Operators Association (ITOC), representing package tour operators catering to North American and European clients.

"Our worry is that we'll end up pricing ourselves out of the market," she said.

Escorted bus tours are now having to limit the number of overnight stays in Dublin due to a lack of availability, while at the same time having to book stays up to 18 months in advance, she said.

The other concern is that tour operators catering to the overseas markets will give Ireland a miss altogether in favour of other European countries like France, Spain and Italy, where room vacancy rates are higher and, therefore, cheaper, she said.

"What's happening at the moment is that kind of business can go elsewhere. There are destinations that are keener and leaner," she said.

Canny investors have already cottoned on to the demand for hotels and, like flush players at a Monopoly game, are snapping up existing hotels as soon as they come on the market.

Sales of hotels in Dublin hit a record €1bn in 2015, with more than 60 hotels changing hands last year and another 15 Sale Agreed for 2016.

Tom Barrett, who specialises in the hotel and leisure sector for Savills estate agents, said even he was surprised by the buoyant demand for hotels that started in 2013 after years of oversupply during the recession. Demand remains strong for this year, with Dublin 1 off O'Connell Street, the Dublin Docklands and the Liberties area around Christchurch Cathedral much sought-after areas.

But because it's still cheaper to buy an existing hotel than build a new one, developers are still having a hard time getting capital for new construction, while other issues like lack of suitable sites, the lengthy planning process and height restrictions are impediments to new construction, Mr Gallagher added.

Meanwhile, a spokesman for Failte Ireland said it "shares the industry's concerns" as it awaits a report on the hotel/infrastructure needs of the industry.