Irish Hotel Property Market Review Q2 2015
Introduction The Irish hotel market enjoyed a very robust opening quarter to 2015, a trend which continued albeit at a somewhat more moderate pace during the second quarter. In total, transaction activity reached approximately 213 million in the six months to June 2015 across 31 hotels, with a further 14 sales agreed. The largest transaction in the year to date was the sale of the 5 star InterContinental Dublin (previously Four Seasons) in Dublin 4 to John Malone for approximately 50 million. Demand for Irish hotels is underpinned by improving trading performance; Ireland s growing reputation as a tourist destination and a great place to do business is continuing to drive international visitor numbers. Notably during the first half of 2015 demand was mainly focussed outside Dublin, with 28 out of the 31 hotels sold located outside of the capital. However in terms of value, Dublin still accounted for 39% of transaction activity. This compares to 56% in the same period last year. Furthermore, the opening half of the year saw domestic buyers becoming increasingly active, purchasing two out of every three hotels in the period. Of the international players in the market, US buyers continue to dominate, accounting for an 80% share of the foreign spend. 2 Q2 2015 Irish Hotel Property Market Review
Economic Overview and Tourism Performance Following a year of significant economic growth in 2014 with Ireland recording the sharpest growth rate in the European Union, momentum continued into 2015 with strong performances in capital investment and overall domestic demand. Falling unemployment levels, combined with consumer sentiment standing at a nine-year high, point to a continued improvement in Ireland s recovery story. The most recent national accounts data for quarter two of 2015 reveals GDP growth of 1.9% in the second quarter, bringing annual growth to 6.7%. GNP also grew by 1.9% in the quarter, bringing year on year growth to 5.3%. Furthermore, total domestic demand grew by 3.5% in the three months to June. Most notably, capital investment increased by 19.2% in the quarter, bringing year on year growth to 34.2%, while personal consumption grew by 2.8% annually. Overall, the most positive news is that GDP and GNP levels have now exceeded peak levels achieved in 2007. Improvements in employment levels remain a key indicator of the pick-up in the Irish economy. Over 57,000 new jobs were generated in the twelve months to quarter two of 2015, an annual increase of 3%, according to the latest CSO labour market data. Most notably, the unemployment rate fell to single digits for the first time since the financial crisis, falling notably to 9.6% in the second quarter of 2015 from 10% the previous quarter, and has been falling steadily since the crisis high of 15.1% in early 2012. With the economy expected to grow solidly again this year, the unemployment rate target for 2015 has now been reached, while a rate of 8.8% is envisaged for 2016. Employment in tourism however is witnessing some volatility on a quarterly basis; while employment in the Accommodation and Food Services Activities sector increased by 0.6% in quarter two 2015 compared to the previous quarter, it has witnessed a dip of 0.8% on an annual basis to stand at 136,500. That said, this figure has recovered by 21% from its crisis low of 112,600 in Q1 2011. It is widely acknowledged that the Irish tourism and hospitality industry is playing a vital role in supporting the economic recovery and this is evident in the increasing number of overseas visitors, particularly in Dublin. Interestingly, Dublin has just recently been voted the world s second friendliest city by a prestigious US travel magazine, making Dublin, and in turn Ireland, a must-see destination and a great choice for a short break or holiday. The latest CSO results reveal that during the period April to June of 2015, the total number of overseas trips increased by 10.3%, to 2.35 million people, compared to the same period in 2014. Things brings the number of overseas visitors in the year to date to 3.88 million. Residents of the UK and Europe accounted for three in every four people visiting during the quarter, while the US and Canada also accounted for a significant share of visitors, 20%. Notably, since the peak of the Irish recession in 2012, the quantity of North American tourists travelling across the Atlantic has more than doubled. This has in part been driven by the competitive euro exchange rate at present, however, over the past decade Ireland has become an established holiday destination driven significantly by invested government initiatives to promote its attractions and ensuring increased Figure 1 international visitor numbers, this helping to boost overall economic recovery around the country. The quantity of North American tourists travelling to Ireland has more than doubled since 2012 Domestically, trips within Ireland by Irish residents in the first quarter of 2015 reached 1.4 million, and while this figure is strong, it remains stable on the corresponding period in 2014. It is worth noting that while historically, the number of domestic tourists in Ireland exceeded overseas visitors annually, domestic tourism has not quite fully recovered from the recession yet, while over the past three years overseas tourism has grown to surpass domestic visitors as illustrated in Figure 1. Following 2014 s Wild Atlantic Way initiative, in which businesses along the west coast of Ireland reported a remarkable success, 2015 is shaping up to be another record year for the tourism sector with up to 7.7 million visitors envisaged. Furthermore, Fáilte Ireland has also progressed with Ireland s Ancient East, a destination brand aimed at offering visitors a compelling and motivating reason to visit the east of the country. In terms of Revenue, spending by both domestic and overseas tourists within Ireland increased during the first quarter of the year; revenue by overseas tourists reached 780 million, an increase of 11.6% compared to the first quarter the year previous, while revenue generated from Irish people on trips in Ireland reached 230 million over the three month period, an annual rise of 6.2%. Tourism in Ireland, 2009-2014 3 Q2 2015 Irish Hotel Property Market Review
Irish Hotel Market A growing tourism industry in Ireland combined with Ireland s intensifying reputation as great place to do business is amplifying the need for hotel accommodation, particularly in Dublin, and this is driving a surge in hotel transactions. Following an exceptionally strong start to 2015, transaction activity in the Irish hotel market continued to perform robustly in the second quarter with a total of 84 million worth of hotels transacting in the three month period, excluding loan sales. This brings the value of sales in the six months to June to approximately 213 million across 31 hotels. A comparison with the same period in 2014 reveals a 17% uplift, with activity in the year 2014 totalling approximately 530 million, transacting across all but three counties in Ireland. Figure 2 Hotels Spend Map, 2014 Activity in the second quarter of 2015 was lower compared with the first quarter, both in terms of value and the volume of hotels sold. Notably quarter two was dominated by one large deal, namely the off-market sale of the 5 star InterContinental Dublin (previously Four Seasons) in Ballsbridge, Dublin 4 for approximately 50 million to US investor John Malone. This alone accounts for almost 60% of the value of hotel sales in the three month period and almost a quarter of sales in the year to date. Other significant deals in quarter two included hotels attached to NAMA s Project Crystal ; the 3 star Glenroyal Hotel, Maynooth, Co. Kildare, sold to The Comer Group for approximately 10.5 million, the 3 star Metropole Hotel in Cork city to UK-based Philip Hotel Holdings for approximately 5 million and Fels Point Hotel, a 4 star hotel in Tralee, Co. Kerry, to a Washington DC family for approximately 4 million. Moreover, the 3 star Maldron Hotel Wexford, which was the only hotel sold as an investment transaction in the year to date and which was also included in the Crystal portfolio, was purchased by Dalata Hotel Group, Ireland s largest hotel operator, for a reported 3.53 million. Also sold in the second quarter of the year was the 4 star Carlton Hotel, Kinsale, Co. Cork, to a UK hotelier for over 6 million, well in excess of the guide price. 4 Q2 2015 Irish Hotel Property Market Review
Irish Hotel Market Notable deals in the six months to June 2015 included the sale of luxury 5 star Adare Manor Hotel & Golf Resort in Co. Limerick to JP McManus for approximately 31.5 million in quarter one, the second largest deal in the year to date and the largest outside of the capital. Furthermore, the high-profile 3 star Temple Bar Hotel, Dublin 2, was sold for 27.5 million to a consortium of investors in the first quarter. There were just two off-market transactions in the first half of the year; in addition to the sale of the InterContinental Dublin, the 3 star Markree Castle in Co. Sligo was purchased by a Scottish buyer for approximately 1.4 million in quarter two. The property is to undergo a 5 million refurbishment and is due to re-open in spring 2016. A feature of the market that became more noticeable over the past number of months is the increasing number of debt restructuring projects by the various banks. These include portfolios such as Project Coney, Project Arch, Project Poseidon, Project Maeve and Project Arrow. It is reasonable to assume that any hotels within these loan sales will not be put on the market until 2016 at the earliest, as the loan purchasers work through their strategies. Table 1 Top 10 Hotel Transactions (Sold), H1 2015 Hotel County Star Rating Price (Approx.) Price per Room (Approx.) Purchaser Origin Quarter Closed InterContinental Dublin Dublin 5 Star 50m 253,807 US Q2 2015 Limerick 5 Star 31.5m 379,518 Irish Temple Bar Hotel Dublin 3 Star 27.5m 211,538 US Clayton Hotel Galway 4 Star 17m 61,538 Irish Whites Of Wexford Wexford 4 Star 14.5m 63,694 Irish Pillo Hotel & Spa Galway 4 Star 10.5m 100,966 Irish Glenroyal Hotel Kildare 3 Star 10.5m 90,920 Irish Q2 2015 Waterford 4 Star 6.3m 350,000 Overseas Muckross Park Hotel & Cloister s Kerry 5 Star 6.25m 93,284 Irish Carlton Hotel Kinsale Cork 4 Star 6m 85,714 UK Q2 2015 Adare Manor Hotel & Golf Resort Waterford Castle Hotel & Golf 5 Q2 2015 Irish Hotel Property Market Review
Investment by Location Demand for hotels in the first half of 2015 was largely focussed outside of Dublin, with 28 out of the 31 hotels sold located outside of the capital. However in terms of value, Dublin still accounted for 39% of the total transaction activity. Figure 3 Hotel Sales Volume by Location, H1 2015 This is not surprising considering two of the three transacted Dublin hotels featured in the five most expensive hotels sold in H1 2015 and therefore contribute significantly to the overall sum. A comparison with the same period last year reveals that 56% of the value of hotels sold in H1 2014 were located in Dublin. Interest for the more regional properties has improved over the past year as hotels in areas such as the west of Ireland have become more profitable due to increasing tourism numbers. Investor demand over the first half of 2015 outside of Dublin was more balanced in terms of value, with 15% of activity taking place in the Shannon region, 13% in the South West, 13% in the West, 12% in the South East and the remaining 6% and 2% in the East & Midlands and North West respectively. Figure 4 Hotel Sales Value by Location, H1 2015 6 Q2 2015 Irish Hotel Property Market Review
Investment by Star Rating Of the 31 hotels sold in the first half of the year, 21 of them were either 4 or 3 star rated, which highlights the strength of the demand for opportunistic middle of the range hotels at present. Just three hotels were 5 star rated. This is a similar pattern when compared to the same period in 2014. An analysis of transactions by value reveals that, of the 213 million worth of hotels sold in H1 2015, 41% were 5 star, bolstered significantly by the sales of the InterContinental Dublin and Adare Manor, while 57% were 4 and 3 star rated combined. Figure 5 Hotel Sales Value by Star Rating, H1 2015 Figure 6 Hotel Sales Volume by Star Rating, H1 2015 7 Q2 2015 Irish Hotel Property Market Review
Investor Type An analysis of the type of investors in the Irish hotel market at present reveals that domestic buyers are becoming increasingly active. In the six months to June 2015, two out of every three hotels sold were bought by domestic purchasers. Of the 21 hotels purchased domestically, 16 of them were either 3 or 4 star hotels, indicating that Irish buyers were most active purchasing small to medium size assets. In terms of value, 52% of purchasers were of Irish origin while 48% were foreign buyers. This compares to a 68% foreign share in the same period last year. A key player in the market in the first half of the year included Dalata Hotel Group, accounting for 21% of all hotel transactions in terms of value. When analysing the proportion of international buyers, demand was strongest amongst US buyers, accounting for an 80% share of the foreign spend and approximately 81.5 million of the hotel assets purchased, while buyers from the UK comprised 13%. The remaining buyer origin spend has not been fully disclosed. Figure 7 Domestic v International Buyers, H1 2015 Figure 8 Origin of International Buyers, H1 2015 8 Q2 2015 Irish Hotel Property Market Review
Asset Type Pipeline Activity Trading properties continue to be by far the most prevalent in the market, accounting for 93% of the hotels sold in the six months to June. This has increased from an 84% share in the comparable period last year. A further 5% were assets closed at the time of sale while the remaining 2% were investment sales. Interestingly, while the proportion of closed properties was minor, 11 out of the 31 transactions were closed highlighting that the majority of these hotels were trading unprofitably and subsequently closed before being placed on the market at low values. Furthermore, the profile of transactions in the first half of the year was dominated by smaller size deals; 77% of the volume of hotels sold were sub 10 million in value, while 13% were 10-20 million, 6% were 20-50 million and 3% were 50 million and over. Figure 9 Asset Type, H1 2015 Transaction activity for the remainder of the year is anticipated to remain steady, with sales agreed on approximately 45 million worth of hotels at the mid-point of the year and many more available on the market. The increase in loan sales by the various banks could boost the supply of hotels on the market for the latter half of 2015 and 2016. Hotels which were sale agreed at the end of June 2015 included three Project Crystal hotels comprising the 4 star Johnstown House Hotel & Spa, Co. Meath, for a reported 6.5 million; the 4 star Killeshin Hotel in Co. Laois for 3 million; the 3 star South Court Hotel in Limerick city for 2 million and the 4 star Osprey Hotel, Naas, Co. Kildare, sale agreed for an undisclosed sum. Furthermore, the 3 star Metro Hotel Dublin Airport was sale agreed for 5.5 million while the 3 star Hotel Clybaun in Co. Galway went for approximately 3.9 million. Moreover, the 3 star Premier Inn Dublin Airport and Dublin Citi Hotel, were both sale agreed as investment transactions for approximately 11 million and 3.5 million respectively at the end of quarter two. A number of large hotels came onto the market in quarter two of 2015; the well-known Castlemartyr Resort, a 103-bedroom, 5 star hotel and spa in Co. Cork, was available guiding 13 million. Furthermore in Dublin, the well-located 4 star Dawson Hotel & Spa in Dublin 2 was on the market guiding 15 million. 9 Q2 2015 Irish Hotel Property Market Review
New Development There is a discernible shortage of hotel rooms available to accommodate the growing number of both tourist and business trips to Ireland, particularly in the capital. Occupancy levels in Dublin city hotels are outperforming that of the rest of the country and have passed pre-recession levels. According to Crowe Horwath s Irish Hotel Industry Survey for 2015, occupancy levels in Dublin rose to 77.2% in 2014 while the average room rate (ARR) increased by 7.2% annually, to 97.25 per night. Rising occupancy levels in Dublin have sparked interest in hotel development With occupancy levels in Dublin edging up to 80%, this has sparked interest in the development of new hotel builds as well as extensions to existing hotels. It is estimated that approximately 2,900 rooms across 34 hotels in Ireland have confirmed planning permission and commenced construction with a further 3,600 speculative rooms envisaged across 65 hotels (new builds and extensions). Despite this, sites in Dublin remain scarce and this is exacerbated by the fact that available sites are regarded as more profitable if invested in and developed for office stock. The most high-profile development in the pipeline, Project Trinity, a 6.8 acre site in Ballsbridge, Dublin 4, which includes two prime Dublin hotels namely the 4 star Clyde Court and the 4 star Ballsbridge Hotel, has a ten year planning permission to construct a large urban quarter including a 152-bedroom, 4/5 star hotel. The site is reportedly sale agreed to a consortium of overseas investors for well in excess of the guide price. In Dublin, construction has commenced on the 9.5 million extension at The Merrion Hotel, Dublin 2, of an additional five storeys, as well as on the conversion of Findlater House, O Connell Street, Dublin 1, to 198-bedroom hotel. Furthermore, construction is expected to commence in Q3 for a 100 million development at Iveagh Gardens which includes a 97-bedroom hotel. Planning permission has been granted for a new development on 17-19 Moore Lane, which includes a new hotel consisting of 107 bedrooms over seven storeys. In addition, planning permission for extensions have been granted for 104 bedrooms at the Red Cow Hotel on the Naas Road, 80 bedrooms at Jury s Inn at Custom House Quay, 52 bedrooms at The North Star Hotel on Amiens Street, 43 bedrooms to Trinity City Hotel on Pearse Street, and nine additional bedrooms at The Belvedere Hotel on Great Denmark Street. Plans have been submitted for a new 181-bedroom hotel on the former Charlemont Clinic site in Dublin city centre. However meanwhile, planning permission was refused for an approximate 12 million development at the former Myra Glass Premises, Dublin 8, for a 150-bedroom, six storey hotel, and an appeal has been lodged by An Bord Pleanála against Dublin City Council. Outside of the capital, construction has commenced for an extension to the existing hotel at the K Club, Co. Kildare for an additional 70 bedrooms, while work has commenced for extensions at Ashford Castle, Co. Mayo and Ballynahinch Castle Hotel in Co. Galway. Furthermore, construction is expected to commence in quarter three for the change of use from an office building to form an extension to the existing Park House Hotel, Forster Street, Co. Galway. Planning permission has been granted for a 10 million expansion of Mount Juliet Hotel in Kilkenny of 69 bedrooms, a new 21-bedroom hotel at the former Inter County Hotel site in Lifford, Co. Donegal as well as an extension to Woodenbridge Hotel & Lodge, Co. Wicklow, for 19 additional bedrooms. Plans have also been submitted for a 34-bedroom hotel development at Cloghanmore, Lifford, Co. Donegal. 10 Q2 2015 Irish Hotel Property Market Review
Outlook for the Future The Irish hotel market witnessed a strong opening half to 2015 for hotel transaction activity and the outlook for the remainder of the year is very positive with a considerable number of hotels sale agreed and anticipated to close shortly. Activity in the six month period totalled 213 million, and with a number of high value portfolios and single properties currently on the market, transaction activity for 2015 could be in the region of 450 million. An increase in the number of loans sales witnessed over the past six month period is an indication of hotels potentially in the pipeline for the future, with a wide range of investors both overseas and domestic expected to show interest. While activity outside of the capital is expected to remain strong, deals such as Project Trinity due to close in the second half 2015 should boost transaction activity within the Dublin market. Irish hotels should continue to grow in profitability as a result of improving tourism numbers; that said, rising ARR levels due to the shortage of available accommodation, particularly in Dublin, could begin to offset the positive impact that tourism is having on the Irish economy at present. 11 Q2 2015 Irish Hotel Property Market Review
AUTHORS Marian Finnegan Chief Economist, Director Research +353 (0) 1 237 6341 marian.finnegan@dtz.ie Deirdre O Reilly Researcher +353 (0) 1 237 6365 deirdre.oreilly@sherryfitz.ie Kirsty Rothwell Head of Hotel Solutions, Director +353 (0) 1 639 9386 kirsty.rothwell@dtz.ie About DTZ Sherry FitzGerald DTZ Sherry FitzGerald is the sole Irish affiliate of DTZ, a global leader in property services. With Irish offices in Dublin, Cork, Galway, Limerick and an associated office in Belfast, we are the largest commercial property advisory network in Ireland and are part of Sherry FitzGerald Group, Ireland s largest real estate adviser. We provide occupiers and investors around the world with best-in-class, end-to-end property solutions comprised of leasing agency and brokerage, integrated property management, capital markets, investment, asset management and valuation. www.dtz.ie 2015 This report should not be relied upon as a basis for entering transactions without seeking specific, qualified, professional advice. It is intended as a general guide only. This report has been prepared on the basis of publicly available information, internally developed data and other sources believed to be reliable. While reasonable care has been taken in the preparation of the report, neither Sherry FitzGerald nor any of directors, employees or affiliates guarantees the accuracy or completeness of the information contained in the report. Any opinion expressed (including estimates and forecasts) may be subject to change without notice. No warranty or representation, express or implied, is or will be provided by Sherry FitzGerald, its directors, employees or affiliates, all of whom expressly disclaim any and all liability for the contents of, or omissions from, this document, the information or opinions on which it is based. Information contained in this report should not, in whole or part, be published, reproduced or referred to without prior approval. Any such reproduction should be credited to DTZ Sherry FitzGerald.