Dublin hotel occupancy a winner, but proves not enough city supply

Dublin

There's a reason why Irish eyes are smiling—and its hospitality industry is beaming the most. 

That's because, according to the latest PwC European Cities Hotel Forecast, Dublin is expected to have the highest occupancy levels in Europe this year, as supply continues to outpace demand.

As the turmoil of the financial crisis is finally shaken out of the sector and the opportunity funds move on in search of fresh distress, the demographics of the owners are changing, too.  

PwC reported that Dublin topped the European city occupancy league in 2016 and would likely do the same this year, with an 83-percent rate expected. The city is forecast to be second, behind Porto, in terms of RevPAR growth, with 8.7 percent predicted this year and 7.4 percent next. 

“Dublin is looking very positive," said Jennifer Gillen, senior manager, PwC. And while its high occupancy rate deserves plaudits, it also signals that the city is in need of more inventory, something Gillen backed up. "One of the big issues with Dublin over the past 10 years has been the lack of new supply coming on stream," she said.

And while it could take some time, new hotels are expected to open. “Pre-recession and during the era of tax incentives, there were a lot of new hotels being built, some of which, outside Dublin, had no business case. Then, over the past 10 years, only a few hotels were built in the city, and now there are a lot of hotels in planning,” Gillen said.

What's Expected

She added that, in and around Dublin, there were plans for up to 80 prospective new hotel projects are in the pipeline. “Whether all of them come on stream remains to be seen," Gillen said. "The Dublin skyline is full of cranes again.”

New supply will remain small in 2017 with approximately 180 rooms being added as extensions to existing properties. In 2018, Savills expects approximately 1,500 net new rooms, accounting for more than 300 rooms. 2019 could then see the delivery of in excess of 2,000 rooms in Dublin.

Strong performance has meant interest from buyers. "There is a transition in buyers already. From 2012 to 2016 the vendors were largely distressed, or banks or NAMA and the buyers were private equity and opportunity funds and Dalata Hotel Group, which floated in March 2014 and acquired a lot of property," said Tom Barrett, director of hotels & leisure at Savills Dublin. “Blackstone Group and Patron Capital have now bought and sold and what you have now are groups in it for the long term, such as the owner/operators and then the longer-term core investors, such as Deka, and Singaporeans, such as Ascott.”

Priced Out?

The growth in interest has deterred some existing players. Dalata said last year that it was “close to being done in Ireland” in terms of acquisitions, as prices continued to rise and announced this year that it was looking to growth in the UK, instead. 

“In terms of volume, we see the markets being more normalised," Barrett said. "There’s still quite a lot of activity set to happen and we have a pent-up retirement sector who might have sold in 2000 and couldn’t in 2007, then survived the economic turmoil and now have equity back in their business and might like to exit. There’s certainly pent-up demand of people who want to get into the city.”

On the edge of this demand are the global operators. “From a brand perspective, Dublin is light on brands," Barrett said. "There was an influx 15 years ago and they have now proven their ability in Dublin. Look at the Marriott/Starwood merger—they only have four properties in Ireland, two are outside Dublin, and are hugely under-represented. There is an appetite and a desire to be here.

“There is a whole generation and a type of hotel which has not yet come to Dublin," he said.

Katherine Doggrell is an editor at Hotel Analyst, the U.K.-based news analysis service for hotel investors.