Pandemic era gives way to renaissance
The Irish economic outlook should continue to represent a strong tailwind for the hotel sector over the medium term. Continued low unemployment and solid wage growth certainly underpins the outlook for domestic leisure spending, as does the war chest of over €150 Billion in savings that households have accumulated over the past number of years. From a tourism perspective inbound traveller numbers had recovered to 94% of pre COVID levels by the end of the first quarter of the year. Looking forward, Oxford Economics is forecasting that visitor numbers into Ireland will grow by around 11% per annum out to 2025, another factor supporting the outlook for hotels.
KEY FINDINGS:
- The Irish hotel sector has experienced unprecedented volatility in recent years with the COVID pandemic calling into question its very survival.
- The pandemic has given way however to a robust recovery underpinned by a fast-growing Irish economy and a quicker than expected resumption of international travel patterns.
- Looking ahead we expect strong employment, solid wage growth and sizeable household deposits in Ireland (over €150 Billion, approximately 30% of Irish GDP) to support consumer spending and leisure demand.
- Inbound travel indicators suggest that visitor numbers are rapidly closing in on pre-COVID levels and forecasts point to average growth of 11% per annum over the next three years.
- Occupancy and room rates have now largely recovered to pre-COVID levels. While the recovery was led initially by regional markets, Dublin is now quickly playing catchup.
- Despite the improved backdrop, the sector still faces challenges around energy costs, staffing issues, the potential reinstatement of the 13.5% VAT rate and the outlook for the room stock currently in alternative use.
- Construction and financial costs currently represent key constraints on further development in the Irish market. While the majority of the development pipeline is focused on Dublin in the next two years, we believe the improved trading backdrop should help this market absorb the new capacity.
- The hotel market has enjoyed a good performance so far in 2023 from a transactional point of view with approximately €130m transacted across nine deals in addition to a number of hotels and sites going sale agreed in recent weeks.
