Dublin will see a 15% increase in room supply by the end of 2019, driven by new stock, according to a study from Savills.
The increase us likely to put pressure on the current strong performance of the city’s hotels and may drive non-rooms revenue as properties search for profit.
Savills said that around 3,500 new hotel bedrooms would be built in Dublin by the end of 2019, with almost 90% of new supply coming from new hotels. The majority of planned developments in the next two years will take place in Dublin 1 and 2, followed by Dublin 8 and Dublin Airport.
Four-star hotels will drive the growth with a stock increase of 65% in 2017, 65% in 2018, and 50% in 2019.
Tom Barrett, director, hotels & leisure, Savills Dublin Commercial, told us: “The majority of the development is in the four star segment, with some in three star and a tiny bit of five star, which is an extension of existing hotels. There is one aparthotel, but very little budget, we are very under-represented in that sector compared with the UK.
“There are no new rooms expected this year, 1,500 rooms next year and in 2019 we could have over 2,000 rooms, but, looking at the hit-rate of developing a hotel room in Dublin, it is unlikely that every hotel room will get funding.
“There are lots of cranes, but they are for offices. It is difficult to fund hotels, people are looking at the pipelines and ahead to 2020 and wondering how that will effect the dynamic. A lot of them are also developers who have planning, but no previous experience in hotels.”
In April this year STR reported a 5.5% increase in ADR, to EUR129.04, with occupancy static at a rate of 86%. Revpar was up 5.4% to EUR111.01. According to PwC, Dublin is expected to see an 8.7% increase in revpar this year, with a 7.4% rise in 2018.
HotStats described Dublin as having recorded the greatest margin of profit per room growth between 2009 and 2016 in the European hotel market. The group said that, for hotels in Dublin, a “serendipitous mix” of operating conditions had enabled a 102.8% increase in RevPAR over the last seven years, driven by a 23.8 percentage point increase in occupancy and a 44.7% increase in average room rate.
In addition, growth in profit conversion at Dublin hotels has soared due to falling non-rooms revenues, which comprised just 39.4% of total revenue in 2016. Shifting revenue away from lower yielding departments has enabled hotels in Dublin to increase profit per room by 218.2% in the last seven years.
Jonathan Langston, co-founder HotStats, said: “Dublin’s happy mix of a booming commercial sector driven by high-profile corporate arrivals, particularly in the tech sector have seen the likes of Google, Facebook, Amazon, Salesforce, LinkedIn, Yahoo, Microsoft and Twitter all land in the Irish capital.
“The booming office market put the brakes on hotel development, always the Cinderella in the land value stakes and, combined with its popularity as a leisure destination, has delivered a RevPAR increase of 103% in the last seven years.
“But arguably, the focus on rooms has under-optimised the performance of the sector; if Dublin hotels had managed to even maintain 2009 non-rooms revenue spend per available room they would have generated on average an additional EUR340,000 per year. However, a strong rooms department performance has enabled profit per room growth of over 200% in the last seven years.”
Looking at the growth in supply, Langston told us: “Hoteliers chase revpar rather than total revenue and it’s really easy to turn on occupancy and grow rate there there is limited supply. Dublin has always had a pretty good eating-out scene and there’s a lot of competition for F&B.
“The trouble is that the hotels that make the most return on investment have mostly rooms, so investors tend towards that model. The economics of hotel development will drive them towards rooms. But if more rooms are going to enter the market they will have to grow and stimulate demand in other areas, such as conference and events.”
HA Perspective [by Katherine Doggrell]: As Barrett pointed out, since the end of the recession in Ireland revpar has doubled and profits have gone up by three or four times, meaning that the new supply is likely to be absorbed, but how much of what is planned will come to fruition? Past excesses seem to be haunting the market.
Those who are committed appear to have taken the issue of profitability to heart. Barrett said: “The new product we see is more focused on rooms and F&B but not as much conference space. The existing hotels are starting to focus on their F&B operations, wondering ‘what else have we got?’ and looking at the ground floor more. But its harder to try and do and the investor community here isn’t interested – they are focused on offices.
“F&B is always quite difficult. You need a star attraction to do it well.” Brands who can offer strong F&B, apply here.