New hotels signed for Ireland hotels, but not all eyes are smiling

On the heels of the Dalata Hotel Group's purchase of the Cork City Clarion for €35.1 million, several other hospitality companies have announced plans for new hotels in Ireland, reflecting the country's improved hotel scene. As noted last week, a report from CBRE Ireland found that for the first nine months of 2015, a total of 54 hotels with a combined value of almost €650 million were sold throughout the country. Lisa Keogh of CBRE’s hotels division said that there is a marked supply and demand problem "simmering" in the Irish hotels market. “The need to release more hotel assets for sale to cater for this demand is becoming increasingly apparent.” 

But while deals are being signed and hotel owners are reporting improved business, there is still some cause for caution.

New deals
Property developer Paddy McKillen is looking to build a new 150-bedroom hotel at a former warehouse at North Wall Quay in the Dublin docklands, which he has just bought from the country's National Asset Management Agency.

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According to the Irish Times, the warehouse is at the front of the newly designated Project Wave site where Singapore developer Oxley has teamed up with Seán Mulryan’s Ballymore to develop 645,834 square feet of offices and 200 apartments. The conversion of the warehouse into a hotel could boost the appeal of the NAMA-sponsored office/apartment project, which is located in a Strategic Development Zone to allow the promoters to avail of fast-track planning with no third party planning objection.

Cian McMorrow of agents Bannon had initially sought €3.9 million for the warehouse but after competitive bidding by a range of Irish and overseas developers, it was knocked down to Oakmount, a company linked to McKillen, for a figure of about €5 million. The new owners apparently plan to spend more than €10 million on adding a further four floors to the three-story building to enable it accommodate about 150 bedrooms.

International developer Hines is also reportedly planning to build a hotel in the north docklands following reports that the city needs an additional 5,000 bedrooms to cater for the fast-expanding tourist and business trades. 

The Times is also reporting that the Tara Towers Hotel and what it calls a "particularly valuable" 1.4-acre site beside it have gone on the market three weeks after the Elmpark office and residential development was offered for sale on the Merrion Road in Dublin 4 at more than €185 million.

Kirsty Rothwell of DTZ Sherry FitzGerald is quoting in excess of €9 million for the 111-bedroom hotel and site, which were bought by Elmpark developers Bernard McNamara and Jerry O’Reilly in 2003 for €14.2 million. Savills are joint selling agents.

The paper notes that while the "profitable hotel" will attract hotel groups because of the shortage of hotel beds in the city, its location and the adjoining site on the edge of Elmpark should mean that groups preparing to pitch for the 17-acre urban campus will consider buying in the hotel as well. 

Northern Ireland has also been seeing its share of deals this week: A company owned by Michael Holland, controller of the Ampleforth Group hospitality business, has bought the 130-bedroom Fitzwilliam Hotel in Belfast's city center in a deal valued at around €23 million, according to industry sources. A sister company of Ampleforth bought the property from its previous owner, investment vehicle Graffan. This will keep the property within the family, as Holland’s management company, Hotel Partners, had been running the hotel on Great Victoria Street in the city since it opened in mid-2009.

Good news, bad news
Investors have a good reason to look to Ireland: Following a strong summer season, Irish hoteliers are more optimistic about their business outlook, with the majority of hotels and guesthouses (some 89 percent) reporting increased business levels so far this year, according to the latest Hotel Barometer from the Irish Hotels Federation. 

Stephen McNally, President of the IHF, said that confidence among hoteliers is improving as the recovery in tourism strengthens. “Irish tourism has performed strongly since the start of the year and throughout the summer season, with overseas visitors set to reach over 7.8 million by year end—a level not seen since 2007," he said in a statement. "The improved outlook for future trading conditions is providing a significant boost to tourism businesses throughout the country, including hotels and guesthouses.”

The improved outlook for the tourism and hospitality sector means that hotel and guesthouse owners are now in a stronger position to invest in their business, with results showing that 95 percent of hoteliers are planning to invest in refurbishment and product development over the next 12 months while 81 percent are planning to increase their investment in marketing.

But there are still some caveats to the good news: McNally noted that the benefits of the recovery are not being felt to the same extent all throughout the country. Growth in occupancy levels, he said, continues to lag in areas outside the traditional tourism hotspots due to an over-reliance on the domestic market, which accounts for more than 80 percent of revenues for many hotels and guesthouses outside the larger urban areas.

Many properties, he continued, are operating from a low revenue base following the downturn, which means the high cost of servicing overhanging debt is a serious challenge. This continues to weigh heavily on many hotels, with some 34 percent saying they remain concerned about the viability of their business.

Other challenges highlighted by hoteliers include the high cost of doing business in Ireland, hotels and guesthouses citing excessive local authority rates as the single most pressing issue stifling cost competitiveness within the sector.  This is followed by high labor costs, utility costs and subdued consumer confidence.