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19 December 20238 minute read

Investing in Irish Hotels in 2024? Think outside the lobby!

Challenging factors affect the hotel finance industry. That can’t be denied. High inflation, VAT rate increases to 13.5%, energy and employee costs, high construction costs, higher financing costs and sustained pressure on disposable incomes all have an impact.

However, plenty of opportunities exist and a savvy investor will be paying attention to the key trends impacting the market.


Initial Turbulence

The hotel finance industry in Ireland unsurprisingly faced turbulence over the last few years, largely due to Covid 19, global migration, rising interest rates and high inflation. The heightened risk environment resulted in less financings/re-financings in that period, with lender focus being on the servicing of existing loans.

More recently, deal activity has generally picked up in the hotel industry across the globe, with CBRE reporting a total of EUR91 million worth of hotel transactions completed in Ireland in Q2 of 2023. There is persistent activity in the market, evidenced by a number of notable transactions this year to date including the sale of the Park Hotel in Kerry, the Clarence Hotel in Dublin. More recently there are reports that Kennedy Wilson are planning to sell the five star Shelbourne in Dublin and Tifco, a company that owns or manages 25 hotels around Ireland, including the Hard Rock hotel and 11 Travelodges, has been put up for sale by its owner Apollo Global Management.


Bounce Back

Ireland has experienced a remarkably resilient hospitality sector over the last 12 months. A bounce-back in demand and occupancy has delivered encouraging financial performance with average room rates soaring in all sectors of the industry. Hotel trading performance is strong with occupancy levels in Dublin reported to be averaging 78%.

This strong performance has increased market confidence, resulting in hotel financings rising significantly over the last 12 months in particular.

Transactional activity in the hotel sector in Ireland has been strong over the past 18 months. With the total value of hotel transactions in Ireland in H1 of 2023 being approximately EUR135 million, this clearly indicates the opportunities for investment in the hotel industry in Ireland.

With a view to capitalising on these opportunities, here are four trends we expect to see across the hotel industry across Ireland in H1 2024:


  1. Continued high demand & strong performance
  2. Hotel revenue per available room (RevPAR) and average daily rates (ADR) have increased significantly which will continue to attract private equity, cash and other investors to Ireland. In fact, the month of May 2023 saw a record-breaking ADR of EUR209 achieved in Dublin. What are the contributing factors to this significant increase?

    Robust national and international tourism demand, increasing migration levels and a strong events calendar for 2023. These have contributed to occupancy levels reaching pre-pandemic levels, and its anticipated this should continue into 2024 with several major events scheduled, including Coldplay and Taylor Swift.

    At the same time, the housing crisis in Ireland has also contributed to the recent strong performance of the hotel industry given the lack of alternative accommodation. Fáilte Ireland have estimated that 13% of registered hotel beds are currently contracted for the housing of refugees. The Irish government are reviewing viable the long-term solutions to increase housing supply generally and to adequately cater for increasing numbers of refugees and displaced Ukrainian citizens. However, those options are currently in the early stages and so the hotel industry will continue to be heavily relied upon to offset supply issues in other sectors of the accommodation market while supply levels increase.


  3. ESG focus
  4. Debt financing will be required by both existing market participants focusing on retrofitting assets and new market entrants seeking to acquire / develop “green” assets. As sustainability continues to play an integral part for investors, hotel owners and consumers, there is an increased focus on green credentials and ESG certifications.

    How does this impact the Dublin hotel market?

    There is a significant “greening” of existing “brown” buildings with tenants looking to relocate to more sustainable buildings driven by their own ESG objectives. Those “brown” or less sustainable buildings are being vacated creating an opportunity for investors to redevelop buildings to hotel / aparthotel assets.


  5. Debt terms
  6. Deal activity will undoubtedly increase with borrowers either refinancing existing debt or disposing of assets (if refinancing opportunities are unavailable) as term facilities mature and lower interest rate facilities expire. We expect the following to be key considerations:

    • interest rates: interest rates are expected to remain elevated as the ECB continues to tame persistent inflation (although EU policymakers do appear to be getting inflation on a downward trajectory).
    • hedging: increased requirement for hedging to mitigate interest rate risk.
    • financial covenants: with RevPAR and ADR expected to level off in the short / medium term, it will be important for borrowers to ensure that financial covenants (in particular interest coverage ratios) are set to realistic levels with built in headroom.
    • LTVs: pre-pandemic loan-to-value LTVs were often at 60-65%+; however, LTVs are decreasing to around 50-60%, with commercial re-valuations likely to impact refinancing options and potentially drive disposals.


  7. Repurposing of buildings
  8. Post pandemic, there is a trend in the UK. Employers require less office space. Existing office spaces have been refurbished for mixed-use, to include accommodation and hospitality services with a view to increasing and diversifying income streams.

    Has this trend been followed in Ireland?

    Yes, in particular in Dublin and Cork where there is a well-publicised shortage of hotel rooms.

    Property developers and hotel owners have been creative in their efforts to tackle this shortage, with a recent trend emerging in the Irish market to repurpose buildings to meet the demand for more hotel rooms.

    For example, planning permission has been approved for the conversion of the Arnott’s car park on Henry Street in Dublin 1 into a 245-bedroom hotel over the department store. We have also seen planning permission being granted for the conversion of an old courthouse in Cork City to a hotel; a former chapel building into a hotel in Dublin 2; and Telephone House, an office building in Dublin 1, which will be converted to a 296-bedroom aparthotel.

    Specifically in relation to repurposing office space, an office building near South Fredrick Street in Dublin which was recently offered to the market had a feasibility study carried out suggesting that the building offers substantial scope for redevelopment as a hotel. Hotel operators have also been afforded opportunities to repurpose “stranded offices” as hotels, however, this comes with its own challenges in terms of location and layout of the building being fit for a hotel.

    Owners of existing hotels are also getting creative and looking to repurpose their own internal areas to create more rooms. For example, the owner of a prominent Dublin City hotel is looking to convert the existing meeting and wedding space in its hotel to more rooms.

    While there are successful examples, that is not to say that the repurposing of buildings into hotel rooms in Ireland is straightforward. A common frustration to property developers in Ireland are the challenges faced by our planning process, where projects can get borne down in objections, appeals and judicial reviews.

    Efforts are being made to modernise the Irish planning system to deal with these challenges. The draft Planning and Development Bill of 2022 has been published.

    Its main aim is to provide the planning process with “greater clarity, consistency and certainty to how planning decisions are made. It will make the planning system more coherent and user-friendly for the public and planning practitioners”. It remains to be seen as and when the Irish plannings laws are formally updated but it is a development generally welcomed by property developers and owners.


Thinking of Investing?

There are many reasons to be positive about the Irish hotel sector, including the return of overseas tourists and the domestic market playing a significant role post pandemic in the strong trading performance of hotels in Ireland. Dublin airport have reported record passenger numbers for Sunday 30th July 2023, with over 120,000 passengers travelling through both terminals on that day, and passenger volumes remained robust for the remainder of the year, with 2.8 million passengers passing through Dublin Airport during the month of October, a 4 per cent increase on the same month in 2022 according to airport operator DAA.

It has been reported that at the beginning of 2023, European investors identified hotels as a particular sector of interest for the year ahead. Whilst H1 has seen a slight slow down in the Irish market from a hotel investment perspective, the market in Ireland continues to be relatively buoyant compared to other EU jurisdictions and the expectation is for strong performance in H1 2024, which should see sustained levels of deal flow in the Irish hotel financing space.