Irish hotels are €5.3 billion in debt and need to reduce this burden by €1.4 billion if the sector is to stay viable, a report by economist Alan Ahearne has found.
He said despite substantial progress being made over the last two years, indebtedness remains a pressing issue for many hotels outside large urban areas such as Dublin.
While hotel debt is down from €6.7 billion at the end of 2011, Mr Ahearne’s report reveals that a further reduction of €1.4 billion is required to bring hotel debt to a sustainable level. This would return hotels to a financial position where they could operate on a long-term sustainable basis and commit to investment in ongoing maintenance, refurbishment, renovation and innovation – and thereby grow employment.
“If you’re so indebted that your interest payments absorb all your profit, you will have no money left to refurbish, maintain and improve the hotel. The quality of the hotel will thus decrease over time,” he said.
“My guess is that there will be fewer five- and four-star hotels in a few years’ time as a result. There will have been a downgrading. That’s a worry as the quality of the hotel is important for tourism.”
Mr Ahearne said new investment has come in to big hotels in Dublin such as the Morrison. However, international investors were less attracted to small-town hotels.
The report shows that, while debt per hotel bedroom decreased from €113,250 to €92,750 over the last two years, progress has been uneven. Advances have been made in urban areas, especially Dublin, which attracted international investors.
However, many medium-sized and smaller hotels, especially outside of urban areas still require investment and debt restructuring.
Mr Ahearne is a former government adviser and is on the board of the Irish Central Bank. The report was commissioned by the Irish Hotel Federation ahead of an an investment conference, which takes place in Dublin today.
Speaking in advance of the conference, Mr Ahearne called for a focus on restructuring balance sheets to restore financial strength to the industry.
He said that part of the solution should involve making money in the recently announced Ireland Strategic Investment Fund available for investment in hotels that are viable but undercapitalised.
Irish Hotels Federation president Stephen McNally said the hotel sector has a critical role to play in contributing to the recovery in Ireland's tourism sector and in the wider economy.
“Tourism supports almost 200,000 jobs, equivalent to 11 per cent of total employment in the country, of which some 54,000 are directly employed by hotels and guesthouses.
In 2013, tourism accounted for 4 per cent of gross national product, with €5.7 billion in tourism revenue, of which €4.3 billion was attributed to overseas visitors.”