Supply of Hotels outstrips demand
The Irish Times Commercial Property Section, Wednesday June 15th 2005

The opening of the Ardmore Hotel on the Finglas Road in Dublin by the McEniff Group is an example of the booming three-star hotel market where growth is highest in the industry, pricing competitive, and occupancy strong.

Many of the three-star hotels in the cities have occupancy rates of more than 90 per cent most months of the year whereas four and five-star hotels are struggling to fill rooms and hovering around the 65 per cent mark.

The higher end of the market will be happy that Jurys Doyle is to sell the site of two of its premier hotels in Dublin taking the four-star Jurys Ballsbridge and the five-star Towers out of the business completely. They will also have breathing space with the closure of the Shelbourne Hotel for 18 months.

Yields at the top end of the hotel market have been decreasing while the value of land has increased making it an easy decision for the Jurys Doyle board to sell.

The closure of the boutique four-star Hibernian Hotel in Ballsbridge and its sale to a property developer is also an example of property value outstripping returns at the top end of the market.

At the lower end, the one and two-star hotels are fast disappearing. Many of these are small family-run businesses and are struggling against the three-star hotels and price-sensitive consumers.

Patricia Coughlan, director of Select Hotels of Ireland, believes we have an oversupply of hotel beds and it is having an adverse effect on tourism.

"Generous tax breaks have led to new hotels mushrooming around the country. Many of these are competing aggressively in the business and offering rooms from as little as €49 per night. Some towns now have an oversupply of hotel rooms and hoteliers just cannot compete."

She cited the example of Kilkenny where the 692 rooms provided by the existing 10 hotels in the market will increase to 1,754, a 150 per cent increase within two years due to an extra seven hotel projects in the planning process or under construction.

The Irish Hotels Federation, in a submission to the Department of Finance in March regarding tax relief on hotel developments, wants capital allowances retained for small properties. In its submission, the IHF also demonstrated that the most economic size for a small hotel is 74 rooms. Which may explain why small traditional family-run hotels are disappearing.

The increase in supply has also begun to affect occupancy rates. The growth in capacity in the three and four-star market meant a drop of two percentage points last year to 67 per cent in the four-star market and 64 per cent in the three-star market, compared to 74 per cent and 68 per cent respectively in 2004.

In the five-star market occupancy contracted by one point to 65 per cent. In the one and two-star market where capacity is declining, occupancy in the one-star market dropped by eight percentage points to 31 per cent.

In the past five years there has been rapid growth in the industry and, while hotel numbers have only increased from 845 to 849, the number of rooms has increased by 15 per cent, from 38,000 in 2000 to 43,900 at the end of last year.

This year it is expected that 30 new hotels will open around the country adding another 3,000 rooms.

How to fill all these rooms is the main concern of Tourism Ireland, who has made access to Ireland their priority. This summer there will be an increase of 34,000 seats from the UK, 31,000 seats from Continental Europe, and 2,000 seats per week from the US compared to 2004, which will help meet the all Ireland target of eight million visitors this year.

Key developments this year include Continental Airlines' new New York to Belfast route, American Airlines from Chicago and Boston, and big increases to the regional airports from Europe and the UK.
Chief executive of Tourism Ireland, Paul O'Toole, is happy with the massive increase in capacity but said "now that consumers are leaving booking decisions later than ever, it is very difficult to predict business levels. However based on the level of enquiries, we are optimistic we can build on last year."

The rural-urban divide on visits to Ireland is a worrying trend, with visitors staying less in the country.

Many of the increases in flights this summer will be to regional airports, and this may help to swing more business outside the cities.

In its second report to the Minister for Arts, Sports and Tourism John O'Donoghue, the Tourism Policy Review Group highlighted a number of key barriers to tourism development. These include the absence of a National Conference Centre.

A point that is echoed by Neil Lane, general manger of the Radisson SAS St Helens Hotel, "growth in business tourism is going to be extremely difficult without a national conference centre. We are already losing business in the high yield convention market. I formerly worked in Edinburgh and the opening of the convention centre was a major boost to business tourism."

John Power, chief executive of the Irish Hotels Federation, said: "I believe that the minister is determined to deliver the convention centre and I would be surprised if we do not have something signed up and running by the end of the year, hopefully in the docklands."

With targets in place to increase tourism to 10 million visitors a year by 2012, what seems like an oversupply now may be just about right in seven years time, if hoteliers can maintain slow growth in face of strong competitiveness.