The Irish Hotel Federation (IHF) hosted their 4th Hotel Investment Conference on the 16 June 2016 in the Ballsbridge Hotel. Crowe Horwath were pleased to sponsor this industry event and Aiden Murphy, partner with Crowe Horwath, was pleased to participate as a guest speaker. Not surprisingly shortage of hotel rooms in the Dublin market dominated the day’s discussions with the guest speakers offering their views as to the level of new supply required in Dublin city in the next 3-4 years. The consensus was that new supply is urgently required in order to maintain the current high occupancy levels and it is expected that average room rates will continue to appreciate further.
Findings from the recent study on Visitor Accommodation in Dublin forecasts that 3,800 new rooms will have entered the market by 2020 between new hotel builds and existing hotel extensions. The report also concluded that owners of sites within the city centre which have current planning for hotels did not feel that funding was a barrier to their projects commencing.
Aiden Murphy’s presentation (pdf) gave an overview of the Dublin market with a focus on land cost for Dublin city-centre sites and potential hotel building costs. He concluded that by the end of 2016 that RevPAR for Dublin is expected to be c€105 and so would provide the necessary return on investment for new hotel development projects.
There was further call for Dublin City Council to encourage new hotel development by allowing the building of additional floors on existing buildings and allowing previously agreed height restrictions be varied. This solution offered a quick and cost efficient option to delivering the additional rooms required in the city. In addition new hotel regulations will allow lower floor to ceiling height for hotel buildings, which will facilitate an extra floor within the existing height restrictions thus improving projects feasibility and economies of scale.
Aiden Murphy continued to say that the value of hotels outside Dublin and other major urban areas continues to trade at less than 50% of replacement cost. It was noted in a recovering economy that many of these hotels can be repositioned following acquisition by an operator with a view to the long term and with capacity to re-invest in catch-up capex works which could dramatically increase profits.
The conference noted that ownership of Irish hotels had changed drastically over the last 4 years with 40% of Dublin hotels now having new owners, 50% of Cork hotels rooms having new owners and 60% of Limerick hotels having new owners.
In conclusion there is evidence of strong interest in both the building of new hotels, extensions and acquisitions of existing properties which appear to be a good value proposition. It will be important that sites being considered for potential hotel build or extensions are considered in terms of feasibility and return on investment. Aiden Murphy recommends that any investor looking at such opportunities complete a feasibility study as each location in Dublin is unique.
A copy of Aiden’s presentation can be viewed here (pdf).
If you would like to discuss any aspect of Aiden’s presentation further or have a query on the Irish hotel sector please don’t hesitate to contact us.
Aiden Murphy is a partner with Crowe Horwath specialising in Corporate Finance and Restructuring. He primarily deals with hotel, tourism and leisure projects and works with new and existing owners to assist with acquisitions, development and disposals of hotels. His other projects include property development, business monitoring and trading receiverships.