Speaking to over 120 industry guests were Daniel O’Connor, EVP, JLL, and Aiden Murphy, partner, Crowe. The special guest speaker was John Brennan, chairman of Klarent Hospitality. The event was opened by John Moran, CEO of JLL Ireland.
The event covered a range of current themes, including the Irish trading performance outlook, the hotel investment market, active buyers and sellers, and the hotel funding environment.
With a hotel sector prepared for when the pent-up demand was released, hotels have seen occupancy return to pre-pandemic levels.
The big step change is the higher average room rates, with those in Dublin forecast to go up to €160, and regional Ireland pent-up average room rates forecast to be up by €32 on 2019 levels, to €133. While these increases look high at first glance, Crowe believes that they are at levels necessary to cover the significantly increased cost of doing business, with which hotels have now to deal.
Unless the cost of operations comes down, we are likely to see the prices being currently charged forming the new baseline in hotel room prices. Considering the trajectory of rising payroll costs (including a higher minimum wage, which is going up by 8% in January 2023) and that payroll costs 35% of revenues, and is the largest single outgoing cost for hotels pre-pandemic, and likely to be over 40% in 2022 and 2023, the scope for cost reductions and bringing down room prices any time soon is remote.
The rate of VAT on room sales was, for the year 2019, put up to 13.5%, having been at 9% for the previous seven years, and weakening market conditions in 2019 actually meant that hotels were not able to pass on the higher VAT cost and had to absorb a drop of €4 on their average room rates, which had a direct hit on their operating profits.
Many hotels have had to defer capital reinvestment projects, and hotels now fear that the scheduled increase in VAT – to 13.5% at the end of February 2023 – will be challenging to pass on, damaging to their recovery prospects, and reduce investment in the sector.
Commenting on the event, Daniel O’Connor, EVP, JLL, said, “Despite market uncertainty, the Irish market has seen over €360 million of hotel investment volumes so far this year, and is on track to exceed €500 million of completed deals by year end. This is a 25% increase versus 2021 levels.
“Whilst private-equity buyers are impacted by rising debt costs, Irish hotels are still transacting regularly, with hotel operators and institutional and private buyers remaining active.
“We expect the next few quarters to present some exciting hotel acquisition opportunities, particularly for those buyers who are in funds and have the foresight to see through the short-term market disruption.
“Given the strong level of deal flow of late, JLL has also recently hired Isobel Horan as a director in the hotel transactions team based in Dublin.”
Crowe partner Aiden Murphy outlined that the bounce-back for hotel trading performance in 2022 is remarkable, considering that we started the year under travel restriction conditions. There would have been widespread solvency issues for Ireland’s hotels if the government had not quickly introduced payroll and other cost supports, which included €780 million in payroll underwrites and €180 million in the Covid Restrictions Support Scheme, alongside other grants availed of during 2020 and 2021. The continuation of payroll supports up to the end of April 2022 provided a foundation for hotels to rebuild their teams and regain some operational efficiencies while avoiding being loss-making, as the sector ramped up in the early months of 2022.
John Brennan, chairman, Klarent Hospitality, concluded the event by providing an insight into his long career in the hospitality industry, ranging from the Four Seasons to working with private-equity ownership. A keen advocate of ESG in the hotel sector and with a long track record of managing large European hotel portfolios, Brennan provided his thoughts on the market in both the short and medium terms.
© 2022 Hospitality Ireland – your source for the latest industry news. Article by Dave Simpson. Click subscribe to sign up for the Hospitality Ireland print edition.