It is no secret that the hospitality sector in Ireland has been one of the major successes in our economic recovery story. In 2016, visitor numbers to Ireland reached more than 10 million, surpassing all previous records. While the response to rising hotel demand in the capital has been well documented, so too is Cork’s somewhat more low-key response, with 11 projects and 1,308 bedrooms at various stages of the development and planning process.
To look at the metrics behind this potential supply increase, it is important to look at the trading performance of the sector over the past number of years. The graph above, taken from Trending.ie, illustrates the trading performance of Cork hotels in terms of occupancy and average room rate from the last peak in 2007 to the end of August 2017.
(Performance of Cork Hotel Market 2007–2017 [YTD August] Occupancy & ADR Source: Trending.ie)
Occupancy reached almost 69% in 2007 while the Average Daily Rate (ADR) at that point was just under €90. Roll on through the recession and occupancy bottomed out at approximately 63% in 2009 while ADR troughed in 2010 at approximately €66. The average daily rate remained relatively consistent until 2014, but all the while hotels in Cork were getting busier from their low point in 2009.
The last three years have really seen the winds of change in terms of hotel trading performance and in 2016 where full-year figures are available, occupancy was recorded at a record 77% which is actually 8 percentage points higher than the 2007 peak while ADR was just over €4 lower than 2007 at €86. In industry parlance, RevPAR or Revenue Per Available Bedroom (the measure of occupancy and ADR combined) was recorded at €66 at the end of 2016, which is 6.4% higher than 2007.
This year looks set to be another record breaker, with year to date figures to the end of August showing occupancy at 2% and ADR at 9.3% ahead of 2016.
There are numerous drivers to this recovery in hotel performance including the Government’s decision to reduce the VAT rate from 13.5% to 9% in 2011, the 2,500km Wild Atlantic Way benefiting the west coast and the general rebound in leisure and corporate business, which primarily benefited the Dublin market.
However, what is more important (particularly against the headwind of Brexit), is where the market is going. In the Cork context, there are numerous reasons to be positive. Of the total visitor numbers to Ireland, Cork currently has a 17.5% market share, making it the second biggest destination by county in the country.
On the corporate front there is a supply pipeline of 2,350,000 sq ft of new office development in Cork with 360,000 sq ft due to be delivered in four schemes that are currently under construction. Coupled with generally increasing business confidence and some very large office requirements in circulation at present the delivery of these schemes will invariably lead to an increase in corporate hotel business.
Cork witnessed its first ever transatlantic flight in July 2017 with Norwegian Air International commencing flights to Boston and it is understood that there are solid plans to add routes to New York in the near future.
The redevelopment of Páirc Uí Chaoimh (which reopened as a 45,000 seater venue in June 2017), will see some major sports and concerts making their way to Cork, but perhaps most importantly, is the delivery of the 6,000 seater Events Centre on the former Beamish & Crawford Site. It has been suggested that this development has the potential to deliver an extra 200,000 visitors into Cork city on an annual basis, which would have a transformative effect on the vitality of city life in the long term.
So, who will deliver these new hotel schemes in the city? First out will be Dalata Hotel Group, Ireland’s largest hotel group which already has a presence in Cork through their ownership of the Clayton Hotel on Lapps Quay and the Clayton Silver Springs. Dalata purchased the unfinished Beasley Hotel near South Mall in 2016 for just over €10 million and recently secured planning permission to complete the 165-bed project. The other site with a full hotel planning is Kyrl’s Quay, in receivership with Russell Brennan Keane, which has planning for 120 bedrooms.
Trigon Hotels have lodged planning for a €50m refurbishment of the Metropole— replacing the existing 112, 3-star bedrooms with 187 bedrooms to a 4-star standard. They also plan to develop a new 228 bedroom ‘M’ hotel brand on the ex PJ O’Hea site on Patrick’s Quay.
On Sullivan’s Quay, BAM Construction lodged a planning application for a 193-bedroom hotel, while the latest application has come from a Clarendon/BAM joint venture for a 136-bedroom hotel on the new HQ development on Horgan’s Quay near Kent train station.
New Cork entrants who may have hotel development in their sights include Tetrarch Capital who recently purchased No’s 7 to 9 Parnell Place, and Manhattan-based Time Square Construction who recently acquired the three-acre Port of Cork site, where a tower in excess of 40 storeys is planned. This should comfortably keep the country’s tallest building in Ireland’s southern hemisphere.
We know that development in any form is a risky business and while the fundamentals for building hotels in Cork clearly exist at present, the reality is that not all of the proposed projects will be delivered, in the short term at least. It is clear that first mover advantage will be critical as these projects are more likely to be financed. As new supply is absorbed into the market, the ability of hotel business to hold occupancy and room rates at levels to support development down the line will ultimately determine what will be built in coming years.
In conclusion, there are many reasons to be optimistic. It is now over 10 years since a new hotel opened in Cork city and we can look forward with certainty to a number of new openings.
- Denis O’Donoghue is head of agency at CBRE Cork