Yet although inflation and higher interest rates pushed yields up and reduced the value of investment properties, demand for regional hotels persisted 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.

Lifestyle Hospitality Capital (LHC) Group, founded in the UK by, former Ennismore chief investment officer Keith Evans, 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. The potential to grow the brand internationally was a key factor in attracting the LHC Group which has been backed by the US group Elliott Investment Management. This transaction is expected to complete in Q1 2024.

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

Elsewhere, 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.

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

In recent years, hotels have become a more mainstream property investment class, and Dublin hotels are now owned by the likes of Aviva, Blackstone, Deka, DWS and Union. The emergence of operators with institutionally acceptable covenants has helped to grow the asset class, with Dalata, Premier Inn and Staycity properties selling at yields of between 3.60% and 5.00% in recent years. 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% on leased assets, 6.00% based on a VP/Franchise model and 6.75% on a MC structure. Savills estimates that prime Dublin hotel yields are currently 4.75%, 6.75% and 7.25%, respectively. Meanwhile, with the base rate hiking cycle having likely peaked, and rate reversals expected to begin by mid-2024, we believe prime headline yields will start to come back in by late 2024.

Elsewhere, an estimated 12% of all beds in Fáilte Ireland registered properties were contracted to the Irish State for the provision of emergency accommodation as of the end of last year. Additionally, a number of regional counties had over 20% of capacity out of normal and tourist use. 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. We believe 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 annum over the next five years. This would lead the total stock of hotel rooms in Dublin to exceed 30,000 by 2029.

Tom Barrett, Director of Hotels and Leisure, commented:

“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.”

STR forecasts that Dublin Hotel occupancy and ADR will dip slightly in 2024. From our work with Dublin hoteliers and looking at the strong events pipeline, Savills predicts some small RevPAR growth in the year ahead. While last year’s VAT rate increase from 9.0% to 13.5% 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% higher than it was before the pandemic.

Tom continued:

“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.”