Ritz-Carlton, Enniskerry: Treasury Holdings has retained its hotel holdings against the trend to convert them to residential or retail
Hotels are hot business in the Republic of Ireland. This year alone, the Irish tourist body, Fáilte Ireland, estimates that 49 hotels will open, with a total of 4,777 bedrooms. Almost half of these will be 4-star or better.
Development has boomed as capital allowance tax incentives, which allowed investors to write-off income tax against the building costs of hotels, have boosted the number of bedrooms in the Republic.
Irish Hotels Federation chief executive John Power estimates that these incentives, in combination with a booming economy, have resulted in the number of bedrooms doubling to 53,000 nationally in the past 10 years.
Yet despite this activity, industry experts are concerned there could be a supply shortage in Dublin.
This is because hotels are disappearing as fast as developers are building them, as many choose to cash in on rising residential values.
With tax incentives disappearing in 2008, and residential prices starting to cool, what is in store for the hotel market? CB Richard Ellis estimates that five hotels will close in Dublin city over the next two years, with a loss of 1,300 bedrooms. Five are due to open, but will provide only738 bedrooms.
According to Power, average hotel occupancy in Dublin city and county is 72%, compared with 64% in the Republic as a whole. Some sources indicate that occupancy levels in the city centre are as high as 90%.
This shortage will be exacerbated further when the National Conference Centre opens in three years’ time, bringing an expected 30,000 extra visitors to the city centre each year.
Austin Hickey, senior manager at BDO Simpson Xavier, also points to the further developments that are likely to boost tourism in the city centre. “Key infrastructural projects, such as the redevelopment of the Lansdowne Road rugby and soccer stadium, the expansion of Dublin airport as well as the conference centre are likely to contribute significantly to future hotel demand in the city.”
He adds: “With the overall bedroom capacity in Dublin set to fall, and demand projected to increase, the short- to medium-term outlook for high occupancy levels is extremely positive.”
Among hoteliers converting to high-value uses is the Jurys Doyle Hotel Group, which is cashing in on the development land potential of its Berkeley Court, Jurys Ballsbridge, the Burlington and Montrose sites. The hotel group has raised €670m for three of them – paid by developers whose initial business projections were based on the residential and retail development potential of these sites.
But can this continue? Some of these deals were done at a time when residential prices were rising in double digit percentage terms, and development land prices were rising even faster than apartment prices. Last year, the Irish Auctioneers & Valuers Institute survey estimated that apartment prices in Dublin showed a slower growth of 8.9% but, nevertheless, apartment development site values rose by as much as 17%.
This year, some of these developers and their investor backers may have second thoughts, as Dublin residential prices begin to slip (see p132). According to the Permanent TSB House Price Index, prices have increased by an average of 0.1% per month. Consequently, those developers still formulating planning applications may consider incorporating hotels into their developments.
One of those most likely to adopt this approach is building contractor Bernard McNamara, who has already set up his own chain of Mercer Hotels. Separately, he has led the refurbishment of one of Dublin’s best-loved hotels, The Shelbourne, developed the Radisson in Galway, and has acquired a 45% ownership stake in the Conrad Hotel in Dublin.
He also recently acquired Jurys Doyle’s largest hotel, the Burlington, for €288m, following his acquisition of the hotel chain’s Tara Towers, Dublin, in 2003.
However, he is not buying them for the hotel business that they provide, but for the development potential of the well-located sites. Although planners turned down initial plans for a 156-bedroom hotel with meeting and conference rooms at the former Tara Towers, a redesign may win permission.
Companies that have retained hotels have done well. Treasury Holdings chose to hold onto Westin in the city centre and the Ritz-Carlton in Enniskerry. And Paddy Kelly – the largest hotel developer in the Republic – has built and acquired a number of middle-market hotels in Ireland, the UK and Belgium, which operate under several international brand names, including Clarion, Comfort and Days.
He is also involved in Choice Hotels and the PREM Group. Choice operates 23 hotels in the Republic under the Clarion Hotels, Quality Hotels and Comfort Inns brands, and is reported to have received an offer of around €150m from an Irish venture capital house.
If returns such as these continue, more developers may be dusting off their hotel plans.
National Conference Centre, Dublin: the opening of the centre in 2010 is expected to bring 30,000 extra visitors to the city each year
