Irish hotel transactions declined in 2023 largely due to fewer Dublin sales and no Dublin investment activity, according to property advisor, Savills Ireland.
The total hotel transaction volume for 2023 was €350 mln – 30% below the historical average. Yet although inflation and higher interest rates pushed yields up and reduced the value of investment properties, demand for regional hotels persisted throughout the year.
Strong trade, attractive yields and the significantly higher replacement costs of regional hotels attracted owner operators, hotel groups and high net worth individuals into this segment of the market.
Major deals
Lifestyle Hospitality Capital (LHC) Group, founded in the UK by former Ennismore chief investment officer Keith Evans, agreed to purchase a majority share in The Dean Hotel Group.
Although the amount paid was not disclosed, the portfolio of 10 properties has reportedly been valued at €350 mln.
It was also reported that The Shelbourne Hotel is for sale and unsurprisingly attracted very good interest.
Elsewhere, Apollo launched a €500 mln sale process for Tifco, Ireland’s second largest hotel chain, with 16 owned and leased hotels across Ireland.
The portfolio includes eleven Travelodges, two Crowne Plazas and a Holiday Inn Express and a total of approximately 2,000 leased and owned bedrooms. Tifco also manages five hotels, bringing the total room count to around 2,600.
Government contracts account for a significant % of Tifco revenue and a sale of some individual assets or a re-financing could be a possibility, instead of a single transaction.
Mainstream appeal
In recent years, hotels have become a more mainstream property investment class, and Dublin hotels are now owned by the likes of Aviva, Blackstone, Deka, DWS and Union. The emergence of operators with institutionally acceptable covenants has helped to grow the asset class, with Dalata, Premier Inn and Staycity properties selling at yields of between 3.60% and 5.00% in recent years.
Savills estimates that prime Dublin hotel yields are currently 4.75%, 6.75% and 7.25%, respectively. Meanwhile, with the base rate hiking cycle having likely peaked, and rate reversals expected to begin by mid-2024, we believe prime headline yields will start to come back in by late 2024.
Elsewhere, an estimated 12% of all beds in Fáilte Ireland registered properties were contracted to the Irish State for the provision of emergency accommodation as of the end of last year. Additionally, a number of regional counties had over 20% of capacity out of normal and tourist use.
In regional Ireland, hotel beds were mainly occupied by Ukrainian guests. In contrast, the majority of the contracted accommodation in Dublin was for asylum seeker and homeless accommodation, which is seen as longer term business.
Activity set to grow
Tom Barrett, director of hotels and leisure, commented: '2024 transactional activity will grow from last year’s levels, with signs that interest rates have plateaued providing investors and prospective buyers with firmer foundations on which to make decisions.'
He added: 'STR forecasts that Dublin Hotel occupancy and ADR will dip slightly in 2024. Savills predicts some small RevPAR growth in the year ahead.
'While last year’s VAT rate increase from 9.0% to 13.5% was a headwind to ADR, the market was supported by a slowdown in the pipeline of new hotel openings, as well as inbound travel which is now 2% higher than it was before the pandemic.
'ESG will also play an increasing role in the Irish hotel market, with more hoteliers focused on securing green credentials. The Wren Urban Nest was the first Net Zero Operational Carbon hotel to open in Ireland.
'With rising energy costs putting pressure on margins, investing in sustainable practices will enable hotels to reduce their costs, improve profitability and boost their brands.'
