Hotel Investment in Ireland: A resilient asset class in 2024

Resilience

While investment in the Irish commercial real estate sector has been very slow in recent times, hotels have bucked this general trend. Spend in Ireland’s commercial property market fell to a new post-financial crisis low in Q1 2024. Investment in hotels, by contrast, is predicted to hit the EUR1 billion mark in 2024. The sector is being viewed by many as being resilient in the short term, with excellent growth prospects in the medium term.

 

Recent deal activity and hotel openings

In 2023, hotels outperformed other commercial real estate asset types, both in terms of deal volume and price, with over EUR300 million invested in the space. By April, this figure had already been exceeded twofold for 2024. This was largely as a result of two major deals. Archer Hotel Capital acquired the Shelbourne Hotel, Dublin’s best known 5-star hotel, from Kennedy Wilson for a reported EUR260 million in March, a sum of EUR1 million per key. A portfolio of hotels owned by the Dean Group, comprising five assets in Dublin and three others across Ireland, was the subject of a significant international investment deal that completed in Q1.

On the back of these completions, investment in the sector is expected to reach EUR1 billion for the year, which will be a record for the market. To put this into context, total spend on commercial real estate in Ireland in Q1 2024 amounted to just EUR163 million. These numbers and examples are as clear an indicator as any that hotels as an asset class currently appear more attractive than more traditional commercial real estate assets such as offices and retail space.

Activity is not limited to Dublin. The Cork development pipeline currently consists of 233 bedrooms and includes a 148-bed Moxy Hotel and a 43-bed Residence Inn by Marriott, both of which are on Camden Quay and due to be completed shortly. A 187-bed Premier Inn on Morrison’s Quay, Ireland’s first Premier Inn located outside of Dublin, opened in January, as part of the brand’s aim to expand its Irish offering to 5,000 bedrooms across the country. The Louis Fitzgerald Group acquired the well-known Imperial Hotel for a reported EUR25 million last summer.

A number of high-profile hotels are currently up for sale around Ireland. Mount Juliet in Kilkenny and Dublin’s The Fleet are guiding at EUR45 million. Cavan’s Slieve Russell is guiding at EUR35 million. And the Radisson Blu St. Helen’s Hotel is believed to be valued at around EUR45 million.

In addition, the Ruby Group’s first Dublin hotel opened earlier this year with a second scheduled to follow in 2025. Ennismore has agreed to operate the Central Hotel in Dublin, which will become the country’s first Hoxton hotel, due to open shortly.

Construction consultants Mitchell McDermott have reported that a total of 2,530 keys were added to the Dublin region in 2023. Just under 3,000 keys are expected to be delivered by 2025, with a further 7,281 keys with planning, meaning the next five years will see a continued increase in hotel numbers.

 

So what are the factors driving this investment trend in Ireland?

Increased tourism

It's widely reported that the tourism industry in Ireland is performing strongly and above the levels of other countries in Europe.

Since the COVID-19 pandemic, domestic holidays have become increasingly popular in Ireland. Low unemployment and solid wage growth have encouraged leisure spending as the appetite for domestic solutions for luxury breaks has increased.

Strong numbers of international tourists have been coming to Ireland. Inbound traveler numbers had recovered to 94% of pre-COVID-19 levels by the end of Q1 2023. Visitor numbers into Ireland are expected to grow by around 11% per year to 2025. According to data from Smith Travel Research, Dublin achieved the highest hotel occupancy rate (83%) out of 35 European markets in 2023.

Tourists from the US remain particularly important. Not only do they comprise a significant portion of visitors to Ireland – 23.9% in June 2023 for example – they're also likely to spend more than their European counterparts. Aer Lingus has increased its capacity and JetBlue has recently entered the US-Ireland market, making it easier than ever for Americans to visit Ireland.

Room shortage

Between 2003 and 2019, Dublin Airport passenger numbers increased from 16 million to almost 33 million. Reflecting this, figures from Fáilte Ireland, the country’s national tourism development authority, show that Dublin’s hotel room numbers grew from 12,700 in 2003 to 19,100 in 2009. By 2019, however, there were actually six fewer hotels operating in Dublin than there were ten years previously. Those remaining were slightly larger, so the number of rooms was up by around 1,000. Even so, the growth in hotel room numbers hasn't met the tourist demand. As a result, Dublin and Ireland more generally have become very attractive locations for investors in the hotel sphere.

Reported returns on investment

These market conditions have led to positive returns on investment. Yields in Dublin are reported to have moved from 3.6% in early 2022 to around 4.75%-5.0% presently. These figures should continue to attract private equity, cash and other investors to Ireland.

Dublin ranked seventh highest in Europe in 2023 in terms of revenue per available room. The average room rate increased by EUR36 between 2019 and 2023. There was an increase of EUR39 for the rest of Ireland over the same period.

Increase in luxury offerings

With Gen Z more likely to spend a higher proportion of their income on travel and the older generations accumulating household savings, the demand for luxury stays in Ireland has risen. Accommodation providers are increasing the supply to meet this demand. Some examples include Adare Manor, Cashel Place and The Anantara Marker Hotel in Dublin, all of which recently underwent renovations to upgrade to a luxury standard.

Success of alternative hospitality offering

Since opening in 2019, Center Parcs has been a great success. The family-oriented resort has secured planning permission for a EUR100 million expansion of its holiday village at Longford Forest, which includes almost 200 new lodges. Center Parcs, which already employs around 1,120 workers at the location, has indicated the expanded facilities will generate a further 280 permanent jobs once operational.

Ecotourism is on the rise. Sustainable destinations that prioritize environmentally friendly practices, minimize carbon footprint and support local businesses are increasing in popularity. The ecotourism market is set to see annual growth averaging around 15% up to 2027. According to Booking.com, 81% of global travelers think sustainable travel is important, with 70% saying they'd be more likely to book sustainable accommodation. Fáilte Ireland has developed an ecotourism handbook as the country prepares itself for this growth.

Repurposing of buildings

As a result of changes brought about by the pandemic, many businesses have been left with an excess of office and other types of space. One solution is to repurpose buildings. A trend has now emerged in Ireland where existing vacant buildings are being repurposed for use as hotels.

Planning permission has been granted for the conversion of the Arnotts car park in the center of Dublin into a 245-bedroom hotel. Other grants include the conversion of an old courthouse in Cork to a hotel, a former chapel building into a hotel in Dublin 2, and the transformation of Telephone House, an office building in Dublin 1, into a 296-bedroom aparthotel.

 

Challenges

When these statistics are set out, it's no surprise that numerous international investors and brands are entering the Irish market. But there are economic challenges for any investor or hotel owner/operator in Ireland:

• Increased costs: The high costs associated with both construction, as a result of high inflation, and financing, as a result of high interest rates, are likely to pose a challenge to the continued investment in assets. The hospitality sector has also faced significant rises in insurance costs over the past few years.
• Planning process: A culture of NIMBYism and a protracted planning process have delayed planned projects.
• Increase in VAT: The government’s recent decision to reinstate the VAT rate of 13.5% applicable to the hospitality sector from the reduced 9% brought in to support the industry after the pandemic will make it challenging for hotels to maintain the momentum of growth in average room price.
• Staff challenges: The hotel sector, given it's so labor-intensive, will this year likely see a reduction in payroll efficiency as the impacts of new employment legalization and wage agreements take effect. Ireland is also in the midst of a well-documented housing crisis, which makes finding accommodation for staff very difficult, particularly in Dublin.

 

Conclusion

Defiant, resilient, and robust are adjectives that can accurately be used to describe the hotel sector in Ireland at present. Performing, attractive, and growing can be added to this list. Not only is the sector punching well above its weight when compared with other commercial real estate asset classes, but it's also responsible for some of the largest deals in the country this year. This all comes on the back of an increased demand from consumers for rooms and luxury vacations, high levels of occupancy, and increasing room rates. While not without its challenges, the hotel sector in Ireland is providing investors with a safe bet and great potential for growth.