DUBLIN, November 14th, 2017 Investment in Irish hotels totalled approximately €10.7 million in the third quarter of 2017, with just four transactions taking place, as the market returns to what is considered a more normal level of activity. This brings year to date hotel investment turnover to €87.6 million.
Considering the 70% annual decline in the value of hotels sold, the slowdown in volume proved less severe. A total of 23 hotels were sold in the year to date, compared to 37 in the same period last year. The market is witnessing a decline in distressed asset sales, and a pickup in re-trades and off market transactions of smaller hotels. Notably, 96% of hotels sold in the year to date have been less than €10 million in value, and 74% with a star rating of 3 or less.
All hotel transactions in quarter three took place outside of the capital. The off-market sale of the 4-star House Hotel, Spanish Parade, Co. Galway, was the largest deal of the quarter, bought by Choice Hotels for €5.4 million. Also off market, the 4 star Anner Hotel in Thurles, Co. Tipperary, was sold to a fund owned by Austrian investor, Thomas Roeggla, for approximately €4 million. The same fund was also behind the largest transaction in the year to date - the €14 million purchase of the 4-star Mount Wolseley Hotel, Spa & Golf Resort in Tullow, Co. Carlow, in quarter two.
The share of hotel sales taking place in Dublin continues to decline. Just four Dublin hotels transacted in the year to date, accounting for 24% of the total value. This compares to a 51% share in the same period in 2016.
Domestic buyers continue to dominate, purchasing 18 out of the 23 hotels sold. Asian and European investors were most active of the international players, while US and UK buyers have been notably absent from the market so far in 2017.
The third quarter saw four new hotels commence construction, bringing the number of new rooms under development across Ireland to approximately 2,000, in 29 hotels. Crucially, 80% of these are in Dublin, where new supply is needed most, given the soaring room rates and occupancy levels occurring in the capital. While much discussion in the industry at present is focussed on the volume of hotel rooms in the planning pipeline, the vast majority of planning applications are speculative and may not go ahead.
Commenting on the market, Niamh Walsh, Associate Director, Trading Assets, Cushman & Wakefield, said; “While in excess of 13,500 bedrooms are currently in the planning pipeline, we anticipate that only 4,000 of these will be built and will come on stream over the next 5 years. The majority of these, 65%, are speculative planning applications, and are unlikely to be built due to alternative use, value and funding. Only 2,500 additional beds will be delivered by the end of 2019”.
On a positive note, the hotel sector was pleased to see the VAT rate left unchanged in this year’s Budget, remaining at 9% for another year. This is positive given that the hotel sector and particularly the Irish tourism sector is seen to be highly susceptible to potential negative effects of Brexit. Ireland’s flow of UK tourists is expected to stabilise, with an increased reliance on European, North American and indeed domestic tourism going forward.
Moreover, the CGT exemption holding period, being reduced from seven to four years for assets purchased up to the end of 2014, should result in a rise in further hotel re-trades from 2018 onwards.
Cushman & Wakefield believes the fourth quarter looks more promising for the Irish hotel market. Although smaller lot sizes will continue to trend, some larger hotel sales such as Carton House Hotel, Co. Kildare, and Knightsbrook Hotel and Golf Resort, Co Meath, should see year end totals firmly boosted.
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