Last month, the head of one of Ireland's biggest hotel buyers claimed that too much competition among buyers meant that purchasing a hotel in Dublin is no longer a good investment. Noel Creedon, head of Cork-based specialist investment firm iNua, said his firm will not buy any properties in the capital despite building up a €20 million fund for hotel acquisitions earlier this year.
iNua and other investors might want to reconsider that policy, and may want to look into building new hotels as well: This week, JLL Hotels & Hospitality Group reported that Dublin is suffering a "major shortage" in hotel rooms, and that the city needs an additional 3,000 rooms to satisfy current demand.
Currently, Dublin has an estimated 19,000 hotel rooms, with fewer than 300 new rooms expected to come online by December 2016. But in 2015 alone, JLL reports that that hotel occupancy in the city center alone has increased 4.6 percent to 84.2 percent, with revenue per available room growing 22.6 percent, one of the highest levels of RevPAR growth in Europe.
Hotel development has been minimal since the recession, with only three significant new additions opening in Dublin City so far this decade (252 rooms at The Gibson in 2010, 187 rooms at The Marker in 2013 and 52 rooms at The Dean in 2015). "Improving levels of corporate and leisure bed night demand in Dublin City are fueling the demand for new hotel developments," Daniel O'Connor, SVP hotels at JLL, said in the report. "Such is the strength of the Dublin hotel operating market, we estimate that average occupancy levels in the city would still remain at a healthy 80 percent, even if 3,000 additional guestrooms were to come online today."
This combination of lack of supply and rising prices could have a significant effect on Dublin's competitiveness as a year-round business and tourism destination. As Property Magazine noted, one of Dublin's most high-profile international events, The Web Summit (which took place last week), will be relocated to Lisbon, Portugal, next year. The organizers cited the lack of quality hotel rooms in the city center as one of the primary reasons for this decision. It has been estimated that the loss of this single event will cost the Irish economy €100 million.
For 2015 and 2016, three Dublin hotels expanded their room count and one new property opened for an addition of 280 guestrooms to the city's portfolio. For 2017 and beyond, 3,415 new rooms potentially might open, but JLL noted that only half of these have obtained planning consent, meaning that many may not come to fruition.
Visitor growth means opportunities
Overseas tourism delivers revenue of over €4 billion to the Irish economy annually, and the magazine estimated that two-thirds of those who come to Ireland visit Dublin.
Passenger numbers were up by 15 percent at Dublin airport in the first six months of 2015, with a major draw being the strength of the U.S. dollar and British pound. According to the Dublin Chamber of Commerce, the tourism industry in Dublin has a target of attracting 6.2 million visitors per year by 2020.
Dublin has a reputation as one of Western Europe's leading commercial destinations, home to a large number of EMEA headquarters (Google, Twitter, Facebook and Amazon, among others). Since opening in December 2010, The Convention Centre Dublin has hosted more than 1,000 events and was voted the Best Overseas Conference Centre at the M&IT Awards 2015 for the fourth consecutive year.
Challenges and solutions
The JLL report cites a number of factors to be considered to address the urgent issue of Dublin hotel development, such as shortage of suitable development sites, lengthy planning processes and lack of competitive development finance. Top spots in the city are attracting investors for office or residential buildings, with the vacancy rate in the city center hovering at 5.3 percent
Funding for hotels is also in short supply: Lending margins from alternative lenders for hotel development is typically in the 8-percent to 10-percent range, more than double the margin charged by banks for financing existing Dublin hotel deals, JLL noted. The majority of planning applications for Dublin hotel developments have been subject to third-party appeal, delaying the timelines. It can take anywhere for two to three years from an initial site acquisition to a hotel opening.
To solve the problem JLL suggests "fast-track planning" and increased finance from lenders beyond NAMA and other government agencies.