The Irish Hotel Market – 2010 Review & 2011 Outlook

The sale of Chief O’Neill’s Hotel in Dublin early in the year for approximately €8.5 million - the first significant hotel transaction for over two years – gave some initial grounds for optimism but with no recovery in hotel market performance in 2010, there was very little activity in the hotel property market consequently. The economic situation coupled with severe liquidity issues continued to compromise the viability of many hotel operations throughout Ireland, including many well run and long-established businesses.

The disruption of flights due to the volcanic ash crisis compounded the difficulties for Ireland’s hotels in the early part of 2010 and many hotels cut room rates in an effort to stimulate business. However, despite the great value on offer and the weakness of the Euro, tourist numbers - particularly outside of Dublin - were disappointing throughout 2010.

The announcement that Bank of Scotland Ireland, which had traditionally funded more than 20% of Ireland’s hotel operations, will depart the Irish market at the end of this year also caused huge concern. Sourcing working capital for the winter months is now a critical issue for many hotels.

More than 50 hotel properties - 5% of the total number of hotels in the country and 8% of hotel bedrooms - went into administration during 2010 including the Morrison Hotel in Dublin city; the Citywest Hotel complex in West Dublin; The Finnstown Country House in Lucan; The Heritage Spa & Golf Resort in Killenard in Co. Laois; The Killeshin Hotel in Portlaoise; Kilkea Castle in Co. Kildare; The Osprey Hotel & Spa in Naas, Co. Kildare, Lisloughrey Lodge Country House Hotel in Mayo and the Temple Spa in Offaly.

There were also some real positives during the last 12 months, which will undoubtedly benefit Irish hotels and tourism generally over the coming years. These include the opening of the Grand Canal Theatre in Dublin Docklands; the much anticipated launch of Convention Centre Dublin; the opening of Terminal 2 at Dublin Airport and the re-opening of both the revamped 02 Arena and the 50,000 capacity Aviva Stadium.

The trend during 2010 was for operators, financial institutions and advisers to try and trade through their difficulties and put management contracts in place, rather than go to the market. To date, the loans of over 87 Irish hotels (and another 52 outside of Ireland) have been acquired by NAMA and we expect both the banks and NAMA to offer hotels to the market during 2011. There is still genuine appetite for good value hotel properties and we have recently agreed a number of sales - albeit to cash buyers and in relatively small lot sizes. We have also been very encouraged by the strong interest being shown - particularly from overseas investors - in the prestigious Four Seasons Hotel in Dublin 4, which CBRE Hotels brought to the market in recent weeks.

Any recovery in the Irish hotel market will be led by Dublin and encouragingly, the most recently available STR performance figures indicate that occupancy in the city reached 80.4% in September - the best return for almost two years. Revpar remains under pressure however due to the continuing discounting of room rate. The proposals to reduce the minimum wage and address other pay anomalies in the Government’s new 4 year plan are broadly welcomed by the hotel industry. All eyes are on the Budget now to see if it will contain anything to ease the serious plight of Ireland’s hoteliers, particularly any measures that might reduce the industry’s fixed costs such as some temporary derogation on rates etc. We would certainly support the removal of the counterproductive €10 tourist tax on December 7th and welcome any other initiatives that might boost ailing tourism numbers.

While the licensed sector of the Irish market was considerably busier in 2010 than in the previous year, there were very few sales transactions completed and the focus was very much on leasing. The Parnell Mooney pub near O’Connell Street in Dublin was sold for approximately €1 million to Eddie Fitzgerald who also purchased the freehold investment interest in the Café en Seine premises on Dawson Street during the year. The Pravda pub and Winding Stair restaurant in Dublin was reportedly sold by a receiver for approximately €1.3 million while a Wexford publican paid approximately €4 million for the Globe and Ri Ra premises in South Great George’s Street and also signed a new lease for The Harbourmaster in Dublin’s IFSC, one of the Thomas Read portfolio of pubs. Two of Waterford’s best known nightclubs and bars – Ruby’s Nightclub and Lounge, the Woodman Bar, Muldoon’s Pub and Oxygen Nightclub - were sold by a receiver for a reported figure of around €4 million.

Conditions in both the hotels & licensed sectors of the market are likely to remain very challenging in 2011. That said, we expect to see an improvement in transactional activity in both sectors over the course of the next 12 months.
This article appeared in the Sunday Business Post printed edition, 28th November 2010.

For further Information please contact:
Dermot Curtin
Hotels & Licensed Department, CB Richard Ellis