Caution cools Ireland joy as it surpasses pre-bust peak
Caution cools Ireland joy as it surpasses pre-bust peak
14 SEPTEMBER 2017 8:26 AM

It might have taken a lot of pain to overcome, but Ireland’s ADR has now surpassed its pre-recession peak. Now hoteliers hope lending diligence and development costs will help avoid the mistakes made in previous peaks.

DUBLIN—Hoteliers are not worried by Dublin average daily rate now surpassing its pre-recession peak, as sources said the industry has learned from the mistakes of the past and demand continues to be healthy.

A report from the Irish office of business advisory Crowe Horwath stated that Dublin ADR has “reached an all-time high, eclipsing the prices of the last boom, as prices in the capital surged at nearly twice the rate of the rest of Ireland over the past year.”

Now hoteliers are putting pressure on the Irish government not to abandon the current 9% rate of value-added/sales tax that they believe is instrumental in Ireland and Dublin’s success attracting travelers. It is significantly lower than the VAT rate in the places like the United Kingdom, which charges 20%.

Niall Geoghegan, principal of hotel management firm Pembroke Hospitality and the former CEO of Jurys Doyle Hotels, said Ireland is enjoying positive times, and that assessment is based on his experience of several downturns.

“Dublin went from what looked like dramatic overcapacity to quickly an undersupply. The convention center changed the dynamic and underpinned good rated business, and it coincided with the return of tourism back to more normalized levels,” Geoghegan said, referring to The Convention Centre Dublin, which opened in September 2010. “The domestic market has helped, and the VAT rate is very important, and very important for employment. Hoteliers can afford to take on more people.”

Tom Barrett, head of hotels and leisure at Savills’ Dublin office, said the Irish hotel industry has been good at explaining its position and that it needs to be in line with the rest of Europe.

As of July 2017, occupancy on a 12-month moving average in Dublin has not been below 80% since March 2015, according to data from STR, the parent company of Hotel News Now. Twelve-month moving average occupancy peaked in Dublin at 82.8% three different times during the streak, in April, May and September of 2016.

On a 12-month moving average, supply has risen from 7.1 million roomnights in January 2007 to 7.6 million in July 2017, but demand has increased more dramatically, from 5.4 million roomnights in January 2007 to 6.3 million in July 2017.

Average daily rate on a 12-month moving average has increased noticeably, from €82.52 ($98.07) in July 2012 to €133.18 ($158.28) in July 2017, while 12-month moving average revenue per available room jumped from €59.67 ($70.92) in July 2012 to €110.01 ($130.75) in July 2017.

Barrett said it had taken Dublin 10 years to catch up to the progress seen in the rest of the world, but Dublin now has an international business base and different population demographics.

“The market has started picking up faster and not fallen as far,” he said. “There is a lot of building, relatively easy debt from Irish banks, (United Kingdom) and European ones, too, and there have been tax allowances, whereas other property sectors did not get those.”

Barrett added that before the last recession, Irish hotels were more reliant on the domestic market and economy.

“(Hotels) did not know where their customers came from, and when it dried up, there were difficulties,” he said. “Now the Irish economy is doing well, especially Dublin, with good employment, and (gross domestic product).”

Debt diligence
If there are any worries about Ireland, they are centered on the funding gap, sources said.

In an 11 April article in The Irish Times, analyst firm Davy Research quoted Ireland’s largest hotel company, Dalata Hotel Group, as saying Irish banks are demanding developers come to the table with 50% equity before any conversation on debt provision can be started.

Some hoteliers are saying there is not as much leverage available, but such concerns are outweighed by the benefits of far more due diligence, even if those such as Barrett underline Dublin tourism organizations’ claims that the city still requires an additional 5,000 rooms to meet demand.

“Few hotels have been built,” Barrett said. “Irish banks are lending into the hotel sector but at different (loan-to-value) and cash ratios. It is extremely cautious, and lower values are being seen, and this is played out in the development pipeline.”

Barrett said that investment is being led by real estate investment trusts, pension funds and high-net-worth individuals, and some easier money is coming in to fill the funding gap.

“Interest rates are lower, of course, 3% and 4%, but suddenly that can become 6%, 8% or 9% on other parts of debt,” Barrett said. “It’s steady as she goes, with funding the key. The cost of development is not low in Ireland; it is expensive. As opposed to 15 years ago, today it is analytical money, not speculative.”

The good news is demand is up to the task, sources said.

“Over the last 12 months, the strongest night is Tuesday, then Wednesday, Saturday and Thursday, so there is week and weekend demand, and extra rooms are starting to come, 350 coming this year, although 2018 is first year when there is real supply coming,” Barrett said. “Dalata will say they will deliver rooms, and we have confidence in that … in total, 4,000 rooms in the pipeline, but, again, the challenge remains funding.”

Stretching out
New entertainment and business districts are springing up in the Irish capital, sources said.

Most notable is Dublin 8, where Guinness and Teeling have their brewery and whiskey distillery operations and attractions. This area is known also as The Liberties. Pembroke Hospitality will open and operate the 202-room Aloft Dublin City there for Marriott International.

“It is a little ahead of schedule, for July of next year, and we reckon probably we’ll be the first of the new hotels to arrive on the scene, which is a good advantage to embed the business in the capital,” Geoghegan said, who added the area’s leisure focus would soon be weighed with more businesses, including Barclays Bank, which he claims is adding 250 employees to its current roster of 150 in the city.

Dalata is also building a hotel on the edge of Dublin 8.

“Millennials are our target market,” Geoghegan added.

Geoghegan said Pembroke is increasingly moving to the equity side, while also managing assets in the Caribbean, Spain and Portugal.

“This will be our model going forwards,” he said. “We had a lightbulb moment two years ago when it seemed to us it made more sense to start building again.”

Barrett said another area of Ireland doing very good hotel business is the Wild Atlantic Way on Ireland’s west coast.

“Travelers are bringing a lot of rental cars, and certainly the VAT rate helps. As most of our (members of Parliament) come from rural Ireland, they are hearing what their voters are saying,” Barrett said, referring to what voters see in terms of the economic benefits of attracting more visitors.

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