The increase in tourism has highlighted the shortage of hotel beds in Ireland. particularly in Dublin. Experts in the tourism industry are concerned that the shortage may hinder further growth in the industry. There are very few new hotel developments in the pipeline and there is a significant shortfall of hotel rooms to be made up. It is still cheaper to buy an existing hotel than build a new one but that market is seeing transaction volumes increase and the value of those transactions is set to surpass last years record of €710m.
It’s no secret that hotel development and development generally is very expensive in the Irish market due to a combination of many factors. The question is, how do you lower the cost and make a hotel development viable in this climate? One trend that can be seen in other property markets is to opt for a hotel development and a mixed use development. Building a hotel alongside a retail complex and/or a residential development may be more expensive at the start but it can work for the mid-market and upscale hotel models which cities like Dublin need. Financially mixed use ensures that the sales of residential and commercial units can quickly offset the high development cost. Such sales proceeds give the developer the space to allow the hotel time to establish itself in the market and stabilise its occupancy rates while also meeting the repayment obligations to any development finance obligations. All of these types of development are individually in short supply here and perhaps its time to think about developing a one stop shop to meet the demands of the market.
Bringing a mixed use project means the developer can get upfront cash by selling the commercial space or the residences. This helps in risk mitigation. More, any new hotel takes time to stabilise and occupancy levels increase at a gradual pace. In the absence of mixed use, the owner is forced to look for more revenue generating space within the hotel, such as more banquet halls or restaurants, said a sector executive.