THE boom in the Irish hotel industry is set to continue into next year, but room rates are likely to be hit by an expected 40 per cent growth in room numbers by the end the decade, according to NCB Stockbrokers.
Analysts Mr Pat O'Neill and Ms Marie-Therese Duffy believe that the trading environment will remain positive for hotels next year. But they warn that the large number of bedrooms due to come on stream from 1998 onwards will result in a fall in occupancy levels from the current 52.8 per cent to 48 per cent in 1999.
They forecast that this will depress room rates from 1998.
Most of the extra room supply will be in three and four star hotels, according to NCB. "This is likely to lead to particularly intense competition in this segment of the market." the brokers said.
The NCB analysts added that the hotels that would fare best in the more competitive environment would be those in city centre locations which have the scale to source business internationally.
"The biggest threat to the existing domestic players will be international hotels groups building all Irish presence, including Stakis, Hilton and Granada. It is the smaller one-hotel operations that are likely to struggle in the less friendly environment," the NCB analysts said.
The report said that good location was the number one requirement for a successful hotel operation. On that basis it questioned the focus of some hotel developments on Dublin Airport and the Naas Road area.
"If all proposed projects close to the airport come on stream, 527 new rooms could be added to capacity by end-1999. Given the airport's proximity to the city centre (20 minutes drive) and the access provided by public transport, we question the prospects for such developments in a less buoyant environment.
"Likewise the area off the Naas Road where, if all proposed developments come on stream, 721 new rooms will come on stream. These rooms are neither in the city nor any meaningful distance to any other major urban centre to add material value to either a business or leisure traveller," said NCB.
NCB emphasises the fragmented nature of the Irish hotel industry, where one unit operations are commonplace and the average number of rooms per hotel is a modest 36. The larger multi-hotel operations - Jurys, Ryan, Doyle, Fitzpatrick, Granada/Forte and Great Southern are, however, much larger than the average.
Jurys has 1,458 rooms in its nine Irish hotels, Ryan 751 rooms in five hotels, Doyle 1,323 rooms in six hotels, Fitzpatrick 314 rooms in three hotels, Granada/Forte 434 rooms in three hotels and Great Southern 871 rooms in seven hotels.
NCB said that the number of overseas visitors would rise by 13 per cent to 5.2 million bed-nights this year and a further 7 per cent in 1997 to 5.56 million bed-nights. Domestic demand for hotel beds was likely to keep pace with growth in GDP, which NCB believes would be 6.5 per cent in 1996 and 1997. "This should take domestic demand for bed-nights to over 4.4 million," NCB said.
NCB is bullish about the prospects of the two publicly-quoted hotel companies, Jurys and Ryan. On Jurys, NCB believes that its strong market position, its exposure to the UK and flow of new rooms would sustain good earnings growth.
Both hotel groups were given "buy" recommendations by NCB.
