Call it Swiftonomics, or simply the Taylor Swift effect, and by the time the record-breaking pop phenomenon takes to the stage for three nights at Dublin’s Aviva Stadium next June, there will be a chemical reaction in the local economy. right. Eventually, it will be possible to quantify it.
Throughout her Elas tour last summer, Swift added an estimated $4.3 billion (4 billion euros) to the U.S. gross domestic product, according to Bloomberg. The Philadelphia Fed said the Hotel in the City of Brotherly Love, where Swift performed for three nights at Lincoln Financial Field last May, is the place where fans from near and far flock to see Swift in her home state. It was announced that the profit was the highest.
In Dublin, hotel prices in the city are already having a knock-on effect and, unfortunately for Liveline callers, have already hit staggeringly high prices on the dates in question. The concert, along with Bruce Springsteen’s Croke Park show in May and other high-profile events over a busy summer, looks set to cap off another year of strong growth for the capital’s hotel.
Since COVID-19 public health restrictions were lifted and international travel resumed in early 2022, hotels in Dublin and across the state have seen a resurgence of activity.
Irish hotels have therefore become popular assets attracting interest from domestic and international investors in the moribund commercial property market. Key assets such as the Kennedy Wilson-owned Shelbourne Hotel, Press Up’s Dean Group and US fund Apollo’s Tifco portfolio are on the market or have been sold in recent months. However, across the value segment, estate agents predict an increase in the number and value of asset transfers in 2024, after a relatively quiet 2023 for transactions.
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What makes Irish hotel assets attractive to investors? And how has the sector recovered so quickly, despite the myriad new challenges that have emerged since the pandemic? Important So, are room prices on an inexorable upward trajectory and what does that mean for domestic consumers and travelers to Ireland?
Tom Barrett, director of hotels and leisure at Savills Ireland, said: “The recovery has been much faster than anyone expected.” “By the end of 2023, people will be back to some degree almost everywhere around the world, and occupancy and prices will be back in Ireland.” [rates] It’s higher. ”
One window into this recovery is the performance of the sector’s largest companies.
Earlier this week, investment bank Numis issued a buy rating on the hotel group’s Dalata shares, pointing to strong cash generation across the group’s asset portfolio in Ireland and the UK since record 2023. In its first report on the Dublin-listed group, it said: Analysts at the Deutsche Bank-owned company say there is potential for further rapid growth in the UK, with Dalata “thinking there is scope to add an additional 5,000 rooms” beyond its current pipeline. He said he is getting a bigger pie on the other side. Irish Sea.
It’s no surprise that the hospitality industry has felt the brunt of the impact of coronavirus restrictions, accounting for the majority of pandemic-related layoffs and furloughs in the first year.
The UK is a “focus” of Dalata’s expansion strategy, while the Republic’s economy’s strong underlying performance, coupled with the hotel sector’s “remarkable” recovery from the pandemic, gives the Clayton & Maldron operator a strong foothold in its home market. Numis said. . Room prices are currently 30% higher across the industry compared to pre-coronavirus levels, with 3% expected to rise this year in Dublin and at a slightly slower pace regionally.
It would be a mistake to view Dalata, the state’s largest private hotelier, as an alter ego to any other industry, given its size and access to capital markets. Unsurprisingly, the Dublin-listed group has been able to tap into the deep cash it has amassed since its initial public offering in 2014, but this has come as a result of the pandemic’s impact on market participation. It was a luxury that many players did not have.
Dalata’s balance sheet was strengthened early in the crisis with the April 2020 sale and leaseback of the Clayton Hotel Charlemont in Dublin to Deca Immobilian. The deal raised €160 million, a smart move in difficult times by then chief executive Pat McCann. for the group.
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These options were simply off the table for many operators.
But the group is something of a bellwether for the industry, and the grim numbers behind Dalata’s situation during the pandemic illustrate the tough position the broader hospitality industry was placed in virtually overnight. ing. The group’s revenue plummeted by 60% in 2020, the first year of the pandemic, to €80.8 million as the company was forced to close its stable of 44 hotels for an extended period throughout the year and into 2021. The Hotel Federation of Ireland estimates that coronavirus restrictions have been wiped out. In the first year of the pandemic, the hotel industry’s overall revenue was 2.5 billion euros, down about 60%.
Dublin, where most of Dalata’s Irish real estate is concentrated, was particularly hurt by the drop in international tourism, but regional hotels managed to recover from summer 2020 thanks to domestic holidaymakers. Ta. For all these reasons, it was no surprise that the hospitality industry bore the brunt of the impact of coronavirus restrictions, accounting for the majority of pandemic-related layoffs and furloughs in the first year.
Now all that is ancient history. Since the final COVID-19 restrictions were lifted in early 2022, a whole new set of interconnected challenges has come to a head, from rising supply chain-related costs to labor shortages and geopolitical conflicts. It’s rising. But across the state, the industry has since come back to life. This method surprised many.
Tourism Ireland is keen to promote Ireland as a ‘value-add’ destination – subtitled: Wealthy – tourists at the ‘high end’ of the market.
It became part of a global phenomenon as tourists in 2022-2023 eagerly pulled out their wallets and drove up room prices. “It’s the same around Europe and in the United States,” Barrett said. “Yesterday, I was looking at some research and I was looking at price increases. [in Dublin] Compared to 2019, it decreased more than many other cities. ”
For fans of Taylor Swift this summer, or back in the days of Bruce Springsteen and Duran Duran, it’s time to book a hotel in the capital around May 2023, when average room rates in Dublin set a record of €203 per night. For those who have made reservations, this will be a burden. They were in town for a series of concerts, which turned out to be one of the most expensive in Europe.
Not without reason, the industry has come under fire from the public and politicians alike for price gouging. Against this background, there was little political will to extend the 9% value-added tax rate beyond its expiration date last August.
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However, from an investor and owner-manager perspective, hotels, unlike other commercial real estate assets, are inherently better able to cope with periods of cost inflation. This is because hotel operators can react instantly by raising or lowering daily rates depending on the situation. market. Renegotiating leases with commercial tenants (such as retailers) is a completely different story.
With rates and occupancy already rising, London-based lifestyle hospitality firm Agreed to take a majority stake in Paddy McKillen Jr. and Matt Ryan’s Dean Hotels portfolio before Christmas. It’s not hard to see why a new entrant like Capital would want to take over Irish hotels. assets. Large institutional investors such as Blackstone, Aviva and DWS are also players in the market, particularly in Dublin.
But industry insiders say it’s not just about price. From a buyer’s perspective, there are reasons to think the tourism sector here will grow in size and value over the medium term, chief among them being the new runway at Dublin Airport and the increase in passenger numbers at the state’s main international airport. One example is a planning application by airport operator DAA that would raise the cap. It is a transportation hub used by 32 million to 40 million people annually.
Meanwhile, Tourism Ireland is keen to promote Ireland as a ‘value-added’ (subtitled) destination aimed at tourists at the ‘high end’ of the market as part of its 2024 strategy. ing.
Alice Manserg, acting chief executive of the Inbound Tourism Authority, recently said that according to the agency’s own research, foreign tourists do not see the island as a “low-cost destination”. So, to some extent, price increases are already built into the average tourist’s expectations, or so the argument goes. “We are considered half-way,” Mansergue said in January. “We’re not trying to market ourselves as cheap overseas. We’re trying to target consumers who have the funds to travel and value experience over low cost.”
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Taken together, barring any sudden external shocks – and there have been one or two in recent years – tourism industry leaders are confident that in the coming years more tourists will be able to reach their destinations with deeper wallets. This means that they are expecting to come here with it.
With all this in mind, Irish hotels are an attractive prospect for international funds and managers, says Dave Murray, senior director of hotels at real estate firm CBRE Ireland.
“If you look at the graphs of international comparisons of economic performance and foreign direct investment, Ireland ranks at the top of them all. Whether you are one of these different funds and have money to manage. It would be remiss, for example, not to look to Ireland when allocating real estate to different asset classes, particularly hotels.”
Last month, Ireland’s hotel sector recorded transaction values of around €350 million, 30% below the long-term average, according to a Savills Ireland report last month. The number of transactions in the calendar year was 20, down from 28 in 2021 and 22 in 2022.
The formal sale of Press Up’s Dean Portfolio to Lifestyle and Elliott Management is expected to be completed in the first half of 2024, with several small and medium-sized transactions also in progress, so the deal has already been completed this year. The situation is looking up.
Meanwhile, Apollo reportedly pulled out of a €500 million sale of its Tifco platform after investors balked at the price. However, the possibility of selling all or part of the 24-property portfolio has not been ruled out.
That aside, trading activity is expected to increase this year, says Savills Barrett. “It’s only the beginning of February, but I think that thanks to the Dean Hotel Group we will probably have sales of over 500 million euros, probably more individual and larger sales than last year. I think there is.”
While that’s positive from a hotel owner and investor perspective, it sounds relatively ominous to value-hungry domestic vacationers and, indeed, Swift fans looking for somewhere to settle down this summer.
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There is no doubt that the hospitality industry has lost some of its competitiveness for Irish consumers, although international travel remains slightly subdued and increased in 2021 and 2022. A MyHome.ie survey last summer suggested that almost half of Irish holidaymakers were considering changing their summer plans due to the cost of living. A whopping 63% of respondents said they can find better deals overseas than at home.
The situation is particularly acute in the capital, where industry complaints about a lack of beds are pitted against public concerns about the saturation of tourist-oriented commercial development in city centres. There is also the small issue of older properties being used as emergency accommodation, particularly near Dublin and across the country.
As they market Ireland, its hotels and experiences to high-spending tourists, are these hotels at risk of losing valuable domestic business?
Dave Murray doesn’t say that. “Targeting purely U.S. tourists or tourists from the rest of the world is not sustainable,” he says. “We need to get them because they are the talent we need to retain to make it a profitable business. But to keep the lights on, we need to be able to attract domestic business.”
Still, the bad blood between Irish Swifties and hoteliers will take time to heal.