Hotel room rates fall to 1999 levels

 

FIERCE COMPETITION among hoteliers in the Republic’s hard-hit hospitality industry has seen average room rates drop back to 1999 levels, according to a survey of businesses.

The annual study, by consultants Horwath Bastow Charleton (HBC), also shows that one-third of Irish hotels are having difficulty meeting interest repayments on their bank loans.

Profits in Irish hotels plummeted by 50 per cent since 2007 because of increased competition, a fall-off in corporate business and a reduction in the average size of functions. This has been exacerbated by an excess capacity of 10,000 hotel rooms, built during the property boom.

The report said the average room rate fell by 20 per cent from €97.69 in 2007 to €77.81 in 2009, and was down a further 10 per cent in the first six months of this year, according to preliminary estimates.

In Dublin, the average room rate dropped by 26 per cent from €116.59 to €87.51 during the two-year period from 2007 to 2009.

However, the recent investment in infrastructure in the capital including the Grand Canal Theatre, the Aviva Stadium and the Convention Centre would help the market rebound quicker in Dublin than elsewhere, the report said.

The hotel sector was in a “very unstable position”, the report noted, with profit margins at many hotels insufficient to meet their loan commitments.

The study cited Central Bank figures which estimated total loans outstanding for hotels in the Republic stood at €6.4 billion at the end of 2009. Since more than 40 per cent of room stock or 25,000 rooms were developed over the last 10 years, this meant an average debt per room of these hotels to be in the region of €135,000, or €3.375 billion of total loans outstanding.

The report noted a “worrying acceleration” in the number of hotels going into receivership and liquidation. HBC estimated the market was essentially only 10 per cent of the way through the fallout. The report said the worst-hit sector of the industry was the newly developed four- and five-star resort market.

It said profit per room at luxury hotels had fallen from a high of €13,954 in 2007 to just €3,092 per room in 2009. The costs of developing these resorts, particularly if they included golf and spa elements, were extremely high.

HBC’s Aiden Murphy said the downturn has led to an increasing dependence on the price-sensitive domestic market which has forced hotels to target “alternative market segments” and eat into the market share of lower classification properties.

Irish Hotels Federation president Paul Gallagher said he saw no sign of improvement in the market. “I can’t see an upturn at all, I think market conditions remain very flat.”

Fine Gael’s spokesman on tourism Jimmy Deenihan said the survey made for “chilling reading” for everybody in the sector and called on the finance and tourism ministers to summon Nama and the banks for talks in order to map out a strategy for the hotels sector.