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The Hospitality Sector in Ireland is split into two-tiers comprising 1) large hospitality groups and 2) standalone independent pubs/hotels. This has evolved over time and has been shaped by dramatic socio-economic events such as the financial crisis of 2008/09 and more recently the pandemic, which forced businesses to close for the better part of 2 years. The pandemic resulted in further consolidation of the market with large hospitality groups, private equity firms and institutional investors coming to the fore as purchasers of asset portfolios.
Traditionally, large hospitality groups tend to focus predominately on the main urban tourist locations of Dublin, Cork, Kilkenny and Galway as they possess the capacity to sustain high volumes of food and beverage sales. Standalone independent pubs/hotels typically to operate in more rural areas, however larger hospitality groups have recently been acquiring existing stock and land with planning permission for hotels in more regional areas. JLL Ireland Hotel deal statistics for Q1 2023 cite that 79% of deal volume occurred in provincial Ireland with deals closing in Galway, Meath, Wicklow, Dublin, Cork, Donegal and Kilkenny.
Trading performance in Ireland’s hospitality industry has remained resilient in the face of inflationary business costs, increased interest rates, staff shortages amongst other challenges. The 2 linchpins of Ireland’s hospitality sector continue to defy the odds and managed to produce exceptional results in 2022 in terms of trade and transaction volume. 23 pubs were sold for a combined €51.5 million in Dublin in 2022.
The rebound for hotel trading performance in particular is noteworthy, considering that 2022 started under travel restrictions. According to statistics produced by STR, hotel occupancy levels across Ireland are on the cusp of full recovery. This aligns with data from Failte Ireland which shows that hotel room occupancy rates rose to a new high in Q4 2022 of 86.9% since the pandemic began, almost identical to the equivalent rate of 87% in 2019. Revenue per Average Room (“RevPAR”) is in positive territory across the board driven by Average Daily Rates (“ADR”).
In terms of transactional activity, circa €500m of hotel and pub trades took place in 2022 according to JLL. There has been €69m of Irish hotel deal volume in Q1 2023, which is an increase of 27% when compared to Q1 2022.
According to Daniel O’Connor, Head of Hotels & Living at JLL Ireland:
“We in JLL are forecasting €500m of Irish hotel transactions for full year 2023, up from €400m in 2022. Interesting that the deal flow was dominated by smaller deals from a buyer profile of private high net worth individual/operator and mostly all cash purchases. While there were no Private Equity buyers in Q1, we expect some bigger hotel deals to complete in Q2, which may see a re-emergence of these players. Whilst Irish hotels are performing very well on the trading side, we all know that some capital structures are now coming under pressure and that should lead to some more deal flow too”
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Read moreCashflow management was integral to survival throughout the pandemic and remains essential to the recovery of businesses who now find themselves confronted by the escalating cost of energy and inflation of business costs. Since 2019, Government initiatives such as the Commercial Rates Waiver, Employment Wage Subsidy Scheme (“EWSS”), a reduced VAT rate of 9% (returning to 13.5% in September) and tax warehousing supported struggling businesses. Some of the larger drink-companies became directly involved in funding the purchase/refurbishment of pubs with C & C Group plc for example becoming particularly active in this market. Funders were required to show flexibility around credit supports and covenant amendments/waivers to enable the road-mapping of businesses back to recovery in unprecedented times.
2022 saw non-traditional lenders taking the lead on providing new funding options for the sector as they established specific funds to cater to the needs of businesses and their cashflow requirements. The funding landscape is therefore more diverse which enables a range of blended financing solutions.
EY’s Capital and Debt Advisory Team sees the sector continuing to be serviced by the two remaining pillar Banks, being AIB and BOI together with other Banks operating in Ireland and a pool of non-Bank Lenders. In December 2022, GWM Group’s Commercial Real Estate Debt Opportunities Fund (CREDO Fund) refinanced a construction loan on a newly-built Hampton by Hilton-branded hotel in Dublin. Other active alternative lenders in the market include Leumi UK who recently agreed a €42.55 million deal to refinance the five-star Morrison Hotel in Dublin.
At a macro level, benchmark interest rates have been increasing steadily, driven primarily by global supply and demand imbalances and the recent geopolitical conflict, both of which have compounded to drive inflation and increase risk. Significant liquidity has continued to underpin markets; however, these macro headwinds and continued uncertainty have made lenders significantly more considered in respect of credit decisions. This credit risk will ultimately lead to slower decision making and a heightened focus on due diligence. EY’s Capital and Debt Advisory team expect that the remainder of 2023 will see:
While 2023 is expected to be another robust year for trading performance and transactional activity, the sector is not without its challenges which will once again test the resilience of the industry.
The outlook for the Irish Hospitality Sector in 2023 is largely positive. This is evident not only by the level of trade in Q1 2023 but also by the number of sales transactions that have been completed. Further acquisitions will likely be a key theme for the remainder of 2023 with financing involving a mix of debt and equity instruments.
