Savills Director Warns High Funding Costs Are Harming Hotel Growth

By Dave Simpson
Savills Director Warns High Funding Costs Are Harming Hotel Growth

Director of hotels and leisure at Savills has asserted that a dearth of accommodation for the corporate market, particularly in Dublin, has "displaced business" to other locations.

According to the Irish Independent,Tom Barrett believes that the blame for this lies with relatively high funding costs, which are making it difficult for developers to secure financing at rates of 5% because a lot of lenders are choosing to the avoid the sector.

While Barrett anticipates that Ireland's hotel room stock will increase by more than 3,000 by 2019, he highlighted the fact that in the decade between 1995 and 2005, the country's hotel room stock rose by approximately 45,000 annually before the yearly figure peaked at almost 60,000 in 2008.

Barrett stated that the scale and savagery of the recession continues to loom over the market, but that the "tap has been turned back on", with the projected rise in the number of hotel rooms over the next two years being "meaningful".

However, Barrett also believes that this relatively small increase has resulted in concerns about over-supply. He said that both banks and non-bank backers alike are currently embracing a "belt and braces" approach to development proposals and argued that any potential hotel project needs to generate revenue per room of €15,000 to €20,000.

Additionally, Barrett predicted that the volume of "exceptional dealflow" transactions is likely to remain lower as a reflection of "stabilised" trading conditions in the wake of the deleveraging of the past few years.