Dublin hotel prices still rising as supply fails to keep up

The price of Dublin hotel rooms continues to rise amid an ongoing problem with supply. However, construction of new hotels is beginning to pick up.

Almost 800 rooms were introduced to the Dublin market in the first nine months of the year, figures from commercial property company Cushman & Wakefield show. These include significant openings such as the 145-bedroom Iveagh Gardens hotel on Harcourt Street and the 140-bedroom Maldron Hotel on Kevin Street in Dublin 8.

By the end of September, a further 2,800 hotel rooms were under construction, up 37 per cent on the same period in 2017. The majority are in Dublin.

Among notable projects is a seven-storey building on Ship Street Great, in Dublin 8, which will have 136 bedrooms.

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But the current undersupply of rooms, coupled with buoyant tourist numbers, pushed revenue per available room (RevPAR) – a key metric in the hotel business which assesses a hotel’s ability to fill its available rooms at an average rate – up by 7.1 per cent in the year to October, according to travel research company STR.

In regional Ireland, RevPAR grew 10.3 per cent in the same period, albeit from a lower base. The average daily room rate outside of Dublin grew 13.3 per cent, with occupancy up 2.1 per cent.

In Dublin, growth in average daily room rates was more muted, up 3 per cent, with occupancy growing 0.6 per cent. The average rate of a room in Dublin in October stood at €146.11 compared to €113.50 in regional Ireland.

Activity

While revenues have been growing, transaction activity in the sector has been limited, Cushman & Wakefield said. The value of sales in the first nine months of the year was down 10 per cent on the same period a year ago at €79.3 million. The agency says it expects sales for the full year to top €120 million, though that is far below the five-year average of over €400 million per annum.

Distressed asset sales are drying up and transactions this year have been mostly small assets, the agency said. Just one hotel sale in the year to date was over €20 million. That was the sale of the Hilton Dublin Airport hotel for €22.5 million. It was one of two hotels sold in the capital in the year to the end of September.

"Dublin city is now seeing a steady pipeline of bedrooms coming on-stream, which is encouraging to see," said Kirsty Rothwell, head of trading assets at Cushman & Wakefield. "As the gateway to the rest of Ireland, it is vital to the wider hotel market that Dublin remains competitive and attractive to tourists."

In October’s budget, the VAT rate for the tourism and hospitality sector was revised back up to 13.5 per cent. Cushman suggested that regional hoteliers in particular were likely to factor the increase into their pricing.

Rachel Fox, an analyst with Goodbody, said the increase in VAT won't be "as severe as expected" for the State's largest hotel group, Dalata.

Ms Fox said the company should be able to pass the increase on to contract business, but added that it “may be more difficult to pass this onto transient customers”.