Savills Ireland has revealed that in 2023 there was fewer Dublin hotel sales and no investment activity in the city.

The property advisor highlighted that the total hotel transaction volume for 2023 was €350 million which was 30 per cent below the historical average.

Despite inflation and higher interest rates, demand for regional hotels continued throughout the year.

Strong trade, attractive yields and the significantly higher replacement costs of regional hotels attracted owner operators, hotel groups and high net worth individuals into this segment of the market.

Dublin hotel occupancy was back above 80% for 2023 which is in-line with pre-Covid occupancy rates. The 2023 average daily rate (ADR) of €180 per room was 27 per cent above 2019 levels. Some regional hotel trade was even stronger, with revenue per available room (RevPAR) for a luxury set coming in around 50 per cent higher than 2019 levels.

Savills estimates that prime Dublin hotel yields are currently 4.75 per cent, 6.75 per cent and 7.25 per cent, respectively. Meanwhile, with the base rate hiking cycle having likely peaked, and rate reversals expected to begin by mid-2024, Savills believe prime headline yields will start to come back in by late 2024.

In regional Ireland, hotel beds were mainly occupied by Ukrainian guests. In contrast, the majority of the contracted accommodation in Dublin was for asylum seeker and homeless accommodation, which is seen as longer term business. Savills Ireland believes most of this Dublin accommodation will not return to hospitality use in the short to medium term. Although it is difficult to predict new supply, from our analysis of the hotel pipeline, we expect average growth of only 3.0 per cent per annum over the next five years. This would lead the total stock of hotel rooms in Dublin to exceed 30,000 by 2029.

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Lifestyle Hospitality Capital (LHC) Group has agreed to purchase a majority share in The Dean Hotel Group. Although details of the amount paid have not been disclosed, the portfolio of 10 properties – with approx..950 rooms when all opened – has reportedly been valued at €350m. The Dean Hotel Group brand was developed by Paddy McKillen Jnr, Matt Ryan and the Press Up Hospitality Group. This transaction is expected to complete in Q1 2024.

It was also reported that The Shelbourne Hotel is for sale and has attracted very good interest.

Apollo launched a €500m sale process for Tifco, Ireland’s second largest hotel chain, with 16 owned and leased hotels across Ireland. The portfolio includes eleven Travelodges, two Crowne Plazas and a Holiday Inn Express and a total of approximately 2,000 leased and owned bedrooms. Tifco also manages five hotels, bringing the total room count to around 2,600. Government contracts account for a significant % of Tifco revenue and a sale of some individual assets or a re-financing could be a possibility, instead of a single transaction.

The Savills prime hotel yield series, which covers 25 city markets in Europe across leased, Vacant Possession (VP) / Franchise and Management Contract (MC) operating structures saw outward yield shifts largely across the board in 2023. As a result, prime European headline yields averaged 5.00 per cent on leased assets, 6.00 per cent based on a VP/Franchise model and 6.75 per cent on a MC structure.

Tom Barrett, Director of Hotels and Leisure at Savills Ireland, said: "2024 transactional activity will grow from last year’s levels, with signs that interest rates have plateaued providing investors and prospective buyers with firmer foundations on which to make decisions.

"ESG will also play an increasing role in the Irish hotel market, with more hoteliers focused on securing green credentials. The Wren Urban Nest was the first Net Zero Operational Carbon hotel to open in Ireland. With rising energy costs putting pressure on margins, investing in sustainable practices will enable hotels to reduce their costs, improve profitability and boost their brands."

STR forecasts that Dublin Hotel occupancy and ADR will dip slightly in 2024. Savills predicts some small RevPAR growth in the year ahead. While last year's VAT rate increase from 9.0 per cent to 13.5 per cent was a headwind to ADR, the market was supported by a slowdown in the pipeline of new hotel openings, as well as inbound travel which is now 2 per cent higher than it was before the pandemic.