Shake-up looms as hotel industry takes stock

A new shake-up in the hotel industry is being predicted as tax breaks on hotels which opened seven years ago run out between now and the end of the year. Fifty-one hotels – the highest number in one year – opened in 2006 with capital allowance tax incentives.

Owners and banks which kept some troubled hotels in business for fear of tax clawbacks may now decide to act, predicts Maureen Doyle, Ireland director of Christie + Co, a firm which advises companies in the hospitality/leisure sector.

Since the crash, a fall in tourist numbers and oversupply has seen more than 100 hotels go into receivership or out of business altogether. High profile hotels affected by the crash include the five-star Ritz Carlton in Powerscourt, Co Wicklow, which went into liquidation last November, and Ashford Castle in Co Mayo, for sale for €25 million after going into receivership in 2011. A US investor is reported to be about to buy the Ritz.

Already, 20 per cent of hotels which got accelerated capital allowances from 2005 onwards are in receivership. About 100 hotels – 10-12 per cent of some 900 in the country – have gone into receivership in the past three years, “and some 30 are reported to have closed”, says Christie + Co. Most hotels in receivership are still trading, managed by groups such as Dalata, Tifco and BDL.

“It’s no secret that Ireland was the victim of a large number of hotels being built for non-commercial reasons in non-commercial locations,” says the firm.

Research by Christie + Co shows that Laois, Mayo, Carlow and Galway have the highest number of hotels in receivership as a proportion of the total number of hotels in those counties.

Bank of Scotland has forced many of the hotels to which it lent money into receivership, as it tries to disentangle itself from the Irish property market.

Write-down scenario

The oversupply has been a boon for tourists, with such hotels offering highly competitive rates to customers – but it has pushed many long-standing establishments close to the edge or out of business. It will not be good news for such hotels if more of the newer hotels go into receivership, says Doyle.

“In reality, a receivership or debt write-down scenario might see their competitors start from a clean slate and in a prime position to move forward with much lower debt to cover.”

Hotel values have collapsed by about 60 per cent from boom to bust, in line with other property values, says CBRE’s head of hotel sales Paul Collins. However, both he and the Irish Hotels Federation (IHF) do not believe that the expiry of tax breaks will be a significant factor in what happens in the 2013 hotel market.

“Some hotels ran into difficulties before their tax life expired,” says Collins. Some have already cut their losses, he says – others continued to trade “because it can be more expensive to close than to stay open”. However, he does expect that for a variety of reasons, 2013 will see hotels continuing to go into receivership.