May 2019 All Hotels

Commentary on the results

o   This report includes all hotels in the Cork, Limerick, Galway, Cork County, Dublin, Waterford and Kilkenny areas.

o   As predicted at the start of the year, May was going to be big challenge due to the Ed Sheeran concerts last year with RevPAR growth of 19.3% nationally in May 18.

o   The only city to show growth was Limerick which was the only city without an Ed Sheeran concert last year.

o   RevPAR declined 5% in the month with Limerick showing growth of 0.6% and Galway showing a decline of 10.8% being the two extremes.

o   RevPAR is still up 13.2% in May 19 versus May 17, if you decide to skip the concert driven month of May 18.

o   Occupancy was down 2% to 84.5% with YTD now down 3% at 69.7%.

o   ARR was down 2.8% at €100.72, but flat YTD at €90.16.

o   To put 2019 into perspective we have had 47 months of continuous RevPAR growth nationally, but with the vat increase in Jan 19, we now have 5 months in a row of National decline. Of course there are other factors but the numbers are the numbers.

o   I would note that the average RevPAR growth nationally in the first 6 month of 2018 was 9.7%, with the second 6 months averaging 4.1%, so I do predict some levelling in the decline in the second 6 months of the year. This decline was driven by decline in occupancy in 5 of the last 6 months of 2018.

mark@trending.ie

CORK – 10 YEARS AND COUNTING

The hotel industry has gone through a massive amount of change in the last 10 years.

1.     Impact of an over-build due to massive government led tax incentives.

2.     Worldwide recession impacting all financial assets.

3.     Collapse in room rates across all sectors.

4.     Change in vat rate down to 9%.

5.     An incredible successful “Wild Atlantic Way”

6.     A massive switch in ownership with hotels moving from Irish owned and operated to large funds and SPV’s being set up.

7.     Unprecedented growth mostly over 3-4 years from 2015 to 2018.

8.     Massive re-investment in hotel assets with extensions and refurbishments

9.     Large increase in employment levels with some serious shortages especially in the area of qualified chefs.

10.  Increase in Vat rate back to 13.5%.

11.  Lots of new builds coming on to the market with even more now with planning permissions.

It seems we have come full circle back to 2007, when Limerick has a 63% increase in its bedroom stock in just 2 years. Cork currently has over 16 planning permission in place for extensions and new builds.

Gathering stats for the hotel industry started with me helping the industry measure the impact of Cork becoming the European City of Culture back in 2005, and have captured the high, lows and highs again ever since.

When the world’s economy’s collapsed the hotel industry was a big victim, as lets be fair large tax breaks help build the industry but also contributed a lot to the over build of assets in dubious commercially viable areas.

Hotel also became the trophy assets of our builders, with helicopters and cars not being grand enough we found a lot of hotels being built for enormous sums of money, with very unrealistic payback models. They were also not able to deal with any shocks and we unfortunately had less of a bump in the road and more of sink hole that you couldn’t avoid hitting and it just depending on how far down the sink hole you went whether you came back out or not.

Rate was fundamentally the first thing to go and remarkable occupancy levels returned relatively quickly but rate grew very slowly from 2009 to 2014.

ARR growth from 2009 to 2014 was only 2.7%, with occupancy up 14% for the same period.

The economy really turned for hotels from 2015, with which has to be described as incredible and realistically unsustainable growth. We hit a perfect summer of a shortage of hotels, due to the lack of finance for new builds, hotels assets now being geared much lower, an incredible successful Wild Atlantic Way. The industry grew occupancy and rate all at the same time leading to massive increases in RevPAR with double digit growth for 3 years in row.

Rate growth from 2014 to 2018 was 45%. Overall RevPAR has grown by over 90% over the 10 year period

To request the full 10 year report for the price €495.00 plus Vat

The Importance of the 9% VAT incentive.

Trending represents statistics from over 70 hotels and includes hotels in Cork, Limerick, Galway, Dublin, Waterford and Kilkenny.

The Irish hotel market has achieved incredible growth with the vat incentive of 9%. The lower vat has yielded significant revenue growth which has resulted in a larger employment pool which ultimately has provided a significant increased tax take.

Another contribution to government tax revenue largely missed is the indirect taxes that hotels contribute in the form of council rates. Hotels that are located in city center locations are liable at the highest rateable charge. Also for service providers like Trending, there are a lot of service company’s surviving and thriving from the hospitality Industry.

So what are the growth levels for hotels?

2017 Occ % ARR RevPAR

Cork 1.7% 11.1% 13.6%

Limerick 2.2% 9.6% 13.2%

Galway 1.8% 5.1% 7.6%

National 1.6% 8.4% 10.8%

After 6 months of 2018

2018 Occ % ARR RevPAR

Cork 2.6% 11% 14.8%

Limerick 0.4% 8.6% 9.3%

Galway 0.8% 8.2% 9.4%

National 1.1% 9% 10.7%

2017 ended with a national occupancy of 77.1%. Due to very limited changes in supply over the last 10 years there has been a very strong rate increase perhaps greater than expected, in some way due to some fantastic initiatives like the Wild Atlantic Way.

At Trending we would feel that any change on the vat rate would have a negative impact on hotels at a time when they are now going to be dealing with a significant increase in competition.

Lower taxes have always increased the overall tax take – Hospitality has been no exception to this economic principle.

Finding your profile

Trending is a hotel benchmarking service, and at our sister company BPO we provide a number of financial services for all hospitality businesses with arguably the largest portfolio of pubs and restaurants in the Cork area.

Whether you run a hotel, bar, restaurant or coffee shop finding your customer profile is vital for your business.

The questions Trending answers for our customers are as follows:

1.    Where is the rooms industry currently performing at – what are the current room rate and occupancy levels?

2.    Are these rates and occupancy moving up, down or flat?

3.    Is this trade moving up in one area and down in another – or if all rising who is rising at a higher level?

4.    Are certain types of hotels rising at a faster or slower pace than others – is the market rewarding budget 3 star over luxury 4 star?

5.    How has new business impacted current market trends?

6.    Where is your business versus the market trend? You might be happy to grow by 5% until you find out the industry is growing by 10%.

New additions to Trending’s analysis is Market Segmentation and Nationality Statistics. Understanding your customer profile is a critical piece to the analysis in understanding why your business is moving with the trend or against the trend or moving at a different pace to the trend.

Finding your customer profile could protect you from the storms of the future or help you capitalise on market opportunity.

1.    What market does your business rely on the most? What percentage of your business is corporate and if your business is corporate how risky is this business? The corporate business are always looking for the new venue to bring their employees and management.

2.    Corporate customers are organised and structured on how they deal with their service providers. What you charged last year is in their budgets and budgets get approved.

3.    If your dominant customer is tourist related then they have generally picked your city and travel times around flights and holiday suitability, not around hotel availability. They tend to pay prevailing market rates and what your hotel charged last year is irrelevant to this year’s tourist.

4.    On the flip side your corporate client will spend in January, where your tourist is nowhere to be seen.

5.    Also don’t forget your life blood which is your domestic customers who is influenced by so many market factors from a tweet from Trump to his neighbour’s new PCP car as to where he will spend his euros next.

6.    Nationality matters as not all tourists are the same. The UK Tourist who trips over to Dublin for a weekend on a £50 Ryanair flight is not the same as American tourist who comes for a week to see the whole of Ireland for a once in a life time trip – they don’t not have the same budget –Nationality profile matters, currency matters.

Understanding your customer profile from their nationality and market segmentation matters – who your customers is, where he/she comes from and why are they here matters to your business. Understanding how your profile differs from your markets profile is key to risk and opportunity management.