Hotel sales slow in 2018 even as room rates soar

After years of strong turnover in the hotel investment market from distressed Nama-driven sales, 2018 was a “normal” year for hotel transactions. It’s odd, however, that this occurred against a backdrop of average Dublin room rates hitting a record €155.75 as occupancy levels reached 89.6 per cent and key metric revenue per available room (RevPar) increased by 9.7 per cent to €139.51.

"International funds and domestic investors are still chasing hotel assets," says Tom Barrett, director of hotels and leisure at Savills. "So there is a good balance of buyers. The recently announced Budget 2019 increase in the VAT rate on the hospitality sector has put pressure on the industry and Brexit is adding plenty more uncertainty. But the outlook is stable for hotels."

Deirdre O’Reilly, senior economist at Cushman & Wakefield, suggests that the limited number of hotel properties for sale over the past year has resulted in a “notable slowdown” in activity. “Investment in Irish hotels amounted to €36.5 million in the third quarter of 2018,” she says, “which brings the nine-month turnover total to €79.3 million, across just eight transactions. Compared to the same period of 2017, this is a 10 per cent fall in the value of sales recorded. This excludes any unconventional hotel sales such as company sales, loan sales and refinances.

“So the Irish hotel market continues to witness a drying up of distressed asset sales which characterised the market in the years 2014-2016, with both the volume and value of transactions slowing. Transactions to date this year have been mostly small-sized assets, with no big-ticket, €50 million-plus hotels for sale on the market. Just one hotel sale in the year to date was over €20 million in value.”

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Recent hotel sales include the four-star Hilton Dublin Airport for €22.5 million to the Canada-based Westmont Group – its first venture into the Irish market – while UK hotel investor Propiteer bought the recently refurbished four-star Ibis Hotel just off the Red Cow interchange for more than €14 million.

“These two hotels were the only two to transact in the capital in the year to date,” says O’Reilly, “but combined they accounted for 46 per cent of the total value. Turnover for the year as a whole could exceed €120 million as about €43 million worth of hotels were sale agreed at the end of September and due to close by year end.

“But turnover will be well below the five-year annual average of over €400 million. All hotels sold in the nine months to September were trading asset sales, with no investment sales occurring in the period.”

However, these figures do not include Lone Star's February sale of 25 hotels, including the Hilton Garden Inn on Dublin's Custom House Quay, to Israeli-backed LRC Group for £600 million (€676 million). The 323-bedroom Dublin hotel is speculated to be worth up to €100 million (or €300,000 a room). In February, too, Tetrarch Capital announced that it had bought out its joint-venture partner, Pimco, to acquire the 774-bedroom Citywest Hotel in Saggart in a reputed circa €70 million deal.

Elsewhere, reports recently suggested that the Tifco hotel portfolio – with about 1,800 bedrooms under its control (second in size only to Dalata Hotel Group in the Irish market) – was bought by US fund Apollo Global for little more than than €200 million. This is far off the mooted value of the portfolio when it was launched in March with suggestions of figures up to €600 million.

Backed by Goldman Sachs, the Tifco group owns 18 hotels, as well as sites for two new hotels in Dublin, and also manages a number of other high-profile hotels around the State, including the Clontarf Castle in Dublin, the Heritage Resort at Killenard in Co Laois and the Metropole in Cork.

There should also be plenty of interest in the Devlin hotel in Ranelagh, which was recently been put on the market recently with a likely value of more than €20 million.

Hotels which sold this year outside the capital include the 132-bedroom Radisson Sligo for about €16 million (or €125,000 per room) and the Connemara Coast in Co Galway for about €10 million (or about €70,000 a room).

Meanwhile, the pipeline of new hotel bedrooms in Dublin is starting to rise sharply. “There were about 250 new hotel bedrooms added to the Dublin market in 2017,” says Barrett.

“That figure will reach 1,150 this year, 1,500 next year and could reach 2,000 in 2020. After that, there should be a steady rise but, as things stand, we need more new hotel rooms in Dublin as occupancy, at 83 per cent, is high and rising.”

Among the new bedroom openings in Dublin this year were 152 at the Iveagh Garden Hotel on Harcourt Street; a 37-room extension to the Clayton in Ballsbridge; a 40-room extension to the Morgan on Fleet Street; 98 rooms added to the Hilton Garden Inn on Custom House Quay; the new 137-room Maldron on Kevin Street; and 202 bedrooms at the Aloft Blackpitts in Dublin 8.

Development activity in the Irish hotel market is “ramping up, with Dublin predominantly the focus”, says O’Reilly, who claims that construction completed on 15 hotel projects during the first nine months of 2018 “into a market in short supply and experiencing increasing occupancy levels”.

O’Reilly suggests that 2,800 hotel rooms are under construction across 31 hotels – a 37 per cent annual rise. The majority of these are in Dublin, with a mix of aparthotels right through to five-star hotels in the pipeline.

“Two-thirds of the rooms under construction comprise new builds, while 19 per cent are in the form of extensions, and the remaining 14 per cent are hotel redevelopments,” says O’Reilly. “The most notable hotel to commence construction during the third quarter of this year was a seven-storey property on Ship Street Great, Dublin 8. This will provide 136 bedrooms upon completion towards the end of 2019.”