HVS – London Office | 7-10 Chandos Street, Cavendish Square, London W1G 9DQ, UK www.hvs.com

IN FOCUS:

DUBLIN, IRELAND

DECEMBER 2014 | PRICE £350

Louise Fury Senior Editor Arlett Oehmichen, MRICS Director

IN FOCUS: DUBLIN, IRELAND | PAGE 2

MAP OF DUBLIN

Source: Google Maps

This market snapshot is part of a series of

articles that HVS produces on key hotel sectors

across Europe. In writing these articles we

combine the expertise of HVS with STR Global

data for each market.

Highlights The capital of the Republic of Ireland, Dublin saw

a massive boom in property development and

investment in the mid-90s. Ireland’s economy

expanded at an average rate of 9.4% between

1995 and 2000. It then continued to grow at an

average rate of 5.9% until 2008, when the

country fell into recession. Banks stopped

lending and development ground to a halt;

However, Ireland’s banks are on the road to

recovery. Property prices in the country are on

the rise, and the economy is showing strong

signs of a rebound. According to the Economist

Intelligence Unit, Ireland’s real GDP growth is

expected to be 5.4% in 2014; growth is then

expected to average 3% from 2015 to 2019;

In 2013, the main feeder markets for Dublin

were mainland Europe, representing 41% of

total visitation; Britain, with 31% of total

arrivals; and North America, making up 19% of

total arrivals;

In 2013, Dublin Airport recorded an increase in

passenger movements of 6% on 2012, with 20.2

million travellers passing through the airport’s

terminals. Passenger numbers at the airport

have increased at a steady pace since 2011,

owing mainly to increases in overseas travellers.

The Middle East and North Africa is a fast-

growing segment for the airport, with an

increase in passenger traffic of 84% in 2013 on

the previous year, albeit from a low base;

International visitation to Dublin represents

75% of total visitation to the city, highlighting the

importance of overseas tourism to the city’s

economy. In correlation to airport arrivals,

visitation to Dublin declined during the

recession. Demand for the city has returned and

2013 recorded an increase in total visitation of

9.8%;

On a compound annual growth rate basis

(CAGR), demand for hotel accommodation in

Dublin has grown slightly faster than supply over

the last five years, at 1.1% and 0.6%,

respectively.;

After declining by an average of 3.4%, average

rate at the city’s hotels grew between 4% and

7% over the last three years. Marketwide

average rate growth of 7-8% is expected for

year-end 2014, and a rise of 3% is forecast for

2015;

There are currently more than 200 hotels in

Dublin, with almost 21,000 rooms. The majority

of these rooms are in the upscale (32%) and

upper midscale (31%) segments;

Two hotels have opened in the market in the past

18 months and there is currently only one hotel

in the pipeline: the Holiday Inn Express Dublin

City, which is due to open during the first half of

2016;

So far this year, nine single asset hotel

transactions have taken place, for a total

investment of approximately €338 million

(€155,000 per room). Notable sales include the

Shelbourne Dublin, A Renaissance Hotel and the

Westin Dublin;

As per the annual HVS Hotel Valuation Index

(HVI), Dublin ended 2013 with values of

€179,400 per room for a typical internationally

branded four-star, city centre property.

IN FOCUS: DUBLIN, IRELAND | PAGE 3

FIGURE 1: VISITATION SOURCE MARKETS 2009-13 (000s)

Source Markets 2009 2010 2011 2012 2013

Britain 1,446 1,202 1,310 1,090 1,251

Mainland Europe 1,583 1,362 1,531 1,582 1,637

North America 634 610 652 687 772

Other 213 239 246 282 338

Total 3,641 3,998

Source: Failte Ireland

FIGURE 2: PERCENTAGE OF INTERNATIONAL VISITATION IN 2013

Britain31%

Mainland Europe

41%

North America19%

Other9%

Source: Failte Ireland

FIGURE 3: PURPOSE OF TRIP – OVERSEAS VISITATION TO DUBLIN IN 2013

Holiday 52%

Visiting Friends/

Relatives 19%

Business 23%

Other6%

Source: Failte Ireland

FIGURE 4: POINTS OF ENTRY TO DUBLIN IN 2013

Air: Britain 32%

Air: Mainland Europe 45%

Transatlantic Air 15%

Sea: Britain 7%Sea: Europe 1%

Source: Failte Ireland

Hotel Demand Patterns

International Feeder Markets

The primary international source market for visitation to Dublin is mainland Europe, followed by Britain (England, Scotland and Wales) and North America. International visitation to the city has fluctuated slightly over the past five years, with falls recorded for most markets in 2010, most likely due to the economic slowdown, which constrained travel budgets for the leisure and business segments alike.

Interestingly, although North American visitors to Dublin make up less than two-thirds of the number of travellers recorded from Britain, in 2013 visitor revenue from North America was €302.7 million compared to €243.3 from Britain, highlighting the importance of the North American market to the city’s economy. Visitor revenue from mainland Europe was €604.9 million.

Purpose of Trip

The chart in Figure 3 shows the purpose of visit for overseas visitors to Dublin in 2013.

Travel to Dublin is mainly leisure driven, with leisure guests making up more than half of total international visitation in 2013. Business travel is still an important segment for the city’s hotel market,

however, with 23% of total overseas visitors.

Routes of Entry

Air travel is the most important port of entry for overseas travellers to Dublin, with sea travel making up a small portion of the market.

IN FOCUS: DUBLIN, IRELAND | PAGE 4

FIGURE 5: VISITATION SEASONALITY: DUBLIN 2013

Jan.-March 18%

April 8%

May 10%

June 9%

July 11%

August 12%

September 9%

Oct.-Dec. 23%

Source: Failte Ireland

Seasonality: When do Travellers Arrive?

Figure 5 shows that seasonality in the city is not markedly pronounced. There are no steep peaks or troughs throughout the year. The low season is the months of September and April, which correlates with the leisure-orientation of the market as these months tend to typically be strong conference months. Demand picks up over the summer but the October to March period attracts the biggest portion of travellers to the city.

Airport Arrivals

In line with visitation statistics, in 2013 passenger traffic from mainland Europe and North America grew by 2% and 5%, respectively, on 2012. Passenger numbers from Britain declined slightly; however, two new short haul routes to Britain were added last year and the results of this increase could show up in 2014 figures (which have not yet been released). It is interesting to note that the Middle East and North Africa area is not currently a major source market for Dublin but passenger traffic to and from the region increased by a staggering 84% in 2013, highlighting the growing importance of this market and the opportunity for the city’s hotels to capture this potential increase in demand for accommodation.

In 2013, additional routes to and from Dublin Airport to North America included a new service from Dublin to New York JFK that started in the summer and seven extra Aer Lingus return flights a week to US destinations. Total increases in services to the region resulted in 112 direct flights per week to 11 North American destinations in summer 2013.

For continental Europe, 11 new routes and services were added last year. Overall, Dublin airport handled 20.2 million passengers in 2013, an increase of 6% on 2012. Passenger movements at the airport have grown steadily since 2011, following a fall of 10% in 2010, a result of the financial turmoil at home and abroad.

Passenger numbers on domestic flights to and from Dublin airport recorded a steep drop of 49% in 2013. Although overseas visitors have returned to the city, owing to strengthening economies worldwide, the domestic market is taking a little longer to recover.

Tourist Arrivals

Arrivals to the city have followed Dublin’s economic ups and downs over the past decade. After climbing steadily to a peak in 2007 of 5.7 million, arrivals to the city then fell as the Irish recession took hold and the financial troubles in the USA and Europe began to emerge. After some sharp dips in 2009 and 2010, of 8.8% and 9.9%, respectively, recovery started in Dublin’s hospitality sector in 2011. In 2013, international arrivals to the city grew by almost 10%, but domestic visitors fell by 3-4%.

FIGURE 7: TOURIST ARRIVALS IN DUBLIN

0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

Domestic International

Source: Failte Ireland

FIGURE 6: PASSENGER TRAFFIC TO AND FROM DUBLIN AIRPORT 2013

Market

Approx. No. of

Passengers

Mainland Europe 10,000,000 +2%

Britain 6,900,000 -1%

North America 1,600,000 +5%

Middle East & North Africa 480,000 +84%

Domestic 63,000 -49%

Source: daa

% Rise/Fall on

2012

IN FOCUS: DUBLIN, IRELAND | PAGE 5

FIGURE 8: CAGR 2008-13

0.6%

-3.4%

-2.9%

0.6%

1.1%

Occ ADR RevPAR Supply Demand

Source: STR Global

FIGURE 9: 12-MONTH MOVING AVERAGE: OCC & ADR % CHANGE JAN 2006- OCT 2014

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

2006 2007 2008 2009 2010 2011 2012 2013 2014

Occupancy ADR

Source: STR Global

FIGURE 10: 12-MONTH MOVING AVERAGE: SUPPLY, DEMAND & REVPAR % CHANGE JAN 2006– OCT 2014

-30%

-25%

-20%

-15%

-10%

-5%

0%

5%

10%

15%

2006 2007 2008 2009 2010 2011 2012 2013 2014

Supply Demand RevPAR

Source: STR Global

FIGURE 11: RECENT HOTEL PERFORMANCE (€)

Year-to-

October 2013 Year-to-

October 2014 % Change

Occupancy 78.2% 79.9% +2.2%

ADR 88.74 96.19 +8.4%

RevPAR 69.37 76.79 +10.7%

Source: STR Global

Hotel Performance Compound Annual Growth Rate

Supply declined in 2009 (-1.1%), in light of the global financial crisis. Since then, recovery has been slow, owing to the Irish financial crisis, until the country announced its exit from the Eurozone bailout programme in 2013.

On a compound annual growth rate (CAGR) basis, demand (+1.1%) for Dublin has grown faster than supply (+0.6%) in the last five years. Openings of new event venues, such as the 3Arena (former O2) in 2008 and the Convention Centre Dublin (CCD) in 2010, as well as the arrival of multinational corporations, such as Google, Facebook, Amazon, and so forth, have helped economic recovery and supported growth in overall hotel room demand.

Average daily rate (ADR) declined by 3.4% on average, and was the sole driver of negative revenue per available room (RevPAR) performance in the last five years. Rate growth has been positive in the last three years, at between 4% and 7%, and is expected to increase by another 7-8% by the end of 2014 and by 3% in 2015.

Recent Hotel Performance (Sample: 83

Hotels)

Year-to-October 2014, Dublin reported an 8.4%

increase in ADR to €96.19. Occupancy grew by

2.2% to 79.9%, leading to the highest RevPAR

levels since 2007.

Demand continued to grow by 2.5% year-to-

October 2014 (+2.8% on the same period last

year). January (+7.8%) and February (+4.6%)

showed particularly strong demand growth in

2014, while supply (+0.4%) remained flat for the

first ten months of the year.

RevPAR recorded double-figure

growth of 10.7% to €76.79 for

year-to-October 2014, after a

6.6% growth in 2013; however,

hotel performance is currently

still about 10% below previous

peaks in 2006, suggesting

potential for further growth.

IN FOCUS: DUBLIN, IRELAND | PAGE 6

FIGURE 14: EXISTING ROOM SUPPLY % BY CLASS

Luxury Class 7.5% Upper

Upscale Class 9.6%

Upscale Class 32.4%

Upper Midscale Class 31.1%

Midscale Class 12.6%

Economy Class 6.8%

Source: STR Global

FIGURE 12: HOTEL PERFORMANCE BY MONTH

0%

10%

20%

30%

40%

50%

60%

70%

80%

90%

100%

0.00

20.00

40.00

60.00

80.00

100.00

120.00

Nov Dec Jan Feb Mar Apr May Jun Jul Aug Sep Oct

ADR RevPAR Occupancy

Source: STR Global

FIGURE 13: HOTEL PERFORMANCE BY CLASS

40%

45%

50%

55%

60%

65%

70%

75%

80%

85%

90%

0.00

20.00

40.00

60.00

80.00

100.00

120.00

140.00

160.00

180.00

Luxury Upper Upscale Upscale Upper Midscale Midcale & Economy

Occ 2013 Occ 2014 ADR 2013 ADR 2014

Source: STR Global

Hotel Performance by Month

Hotel Performance by Class

On a 12-month moving average basis, ADR

increased across all classes, while occupancy

declined in the upper upscale class only.

Upscale (+10.5%) and midscale & economy

(+10.1%) experienced the strongest increase in

ADR of all classes, while the luxury class grew by

+0.7%.

Upper upscale (82.9%) and upper midscale (82.2%) achieved the highest occupancy levels of all classes, while upscale, with +76.4%, achieved the lowest.

Recent and Future Hotel Openings

In Dublin there are currently more

than 200 hotels with almost 21,000

hotel rooms, and the majority of the

rooms lie within the upscale (32%)

and upper midscale class (31%).

The 187-room Marker Hotel and the

recently opened 51-room Dean

Hotel were the only additions to

Dublin’s hotel room supply in the

past 18 months.

The 198-room Holiday Inn Express

Dublin City Centre is currently the

only hotel in the pipeline; it is scheduled to open in

the first half of 2016.

IN FOCUS: DUBLIN, IRELAND | PAGE 7

FIGURE 16: HOTEL VALUES PER ROOM – DUBLIN 2007-18(€)

100,000

150,000

200,000

250,000

300,000

350,000

400,000

Source: HVS – London Office

FIGURE 15: HOTEL TRANSACTIONS IN DUBLIN 2014 (€)

Sale Property Rooms Sale Price Price/Room Buyer SellerJan. The Shelbourne Dublin, A Renaissance Hotel¹ 265 111,498,400 420,749 Kennedy Wilson Irish Bank Resolution Corporation/Bank of IrelandJan. Clarion Dublin Airport 248 15,000,000 60,484 Dublin Airport Authority NAMAJan. Clarion Hotel Dublin City (IFSC) 147 33,000,000 224,490 Patron Capital KPMG (Receivers) on behalf of NAMAJan. Hilton Dublin 193 30,000,000 155,440 John Malone UndisclosedMay Pearse Hotel² 101 9,000,000 89,109 Dalata Hotel Group Citywide LeisureJune Maldron Hotel Parnell Square 126 15,300,000 121,429 Dalata Hotel Group UndisclosedJune Portmarnock Hotel & Golf Links 138 30,000,000 217,391 Kennedy Wilson Mazars (NAMA)July Westin Dublin 163 65,000,000 398,773 John Malone/Lalco Hotel Group UndisclosedAug. Citywest hotel and conference centre 789 29,000,000 36,755 Brehon Capital Partners Bank of Scotland (Ireland)Total 2,170 337,798,400 155,667

¹ Sales price reportedly paid for loans secured against the hotel.

² Sales price is the figure that the hotel was on the market for; the actual transaction price was reported to be €13 million but this also included two adjacent commercial buildings.

HVS Research

Hotel Investment HVS has recorded nine single asset hotel transactions above €7.5 million that have closed in the Dublin market in 2014 so far. Compare this with the two transactions noted for the city in our 2013 European Hotel Transactions report and it seems that the Dublin market is once more becoming a hot spot for investors. The majority of buyers originate from Europe, but US buyers are still attracted to the market, particularly for trophy assets, with American billionaire John Malone purchasing two hotels in the Irish capital: the Hilton Dublin in January for €30 million and the Westin Dublin in July for €65 million, two of the most prominent sales recorded this year. A hangover from Ireland’s property boom and ensuing financial crisis, many of the transactions in the market are distressed, with the country’s National Asset Management Agency (NAMA) bringing numerous hotels to the market over the course of the year. According to DTZ Sherry FitzGerald, about half of the 136 hotels in Ireland secured on NAMA loans are in Dublin. Countrywide, NAMA has sold 19 hotels to date and recovered €237 million.

Hotel Values From our valuation experience and knowledge of the market, we estimate that hotel values in Dublin have evolved and are expected to grow as shown in Figure 16. Hotel values per room in the Irish capital peaked at approximately €250,600 in 2006. A small fall was recorded in 2007 but in 2008, as the Irish economy fell into recession, the decline in values per room was sharp, at 18.6%. The steep fall continued in 2009 with a further decrease of 22.2%, constrained by not only the problems in the domestic economy but

also the wider financial troubles across Europe and worldwide, leading to falls in visitation numbers and hotel stays, and thus depressed hotel performances and values. Dublin’s values per room reached their lowest point in 2010, at around €150,200. However, in 2011 and 2012, on the back of an improving economy, better investor sentiment and a willingness from banks to start lending again, values per room grew by a respectable 6.1% and 5.5%, respectively.

In 2013, values per room rose by 6.6%. As per our annual HVI report, Dublin is 22nd in terms of value per room in the 33 European cities we monitor. Dublin ended 2013 with values of €179,400 per room for a typical internationally branded four-star, city centre property. Although, values in the Dublin market have risen consistently for the past three years, they are still well below the 2006 peak and approximately 33% below the average value per room for the 33 cities covered by the HVI, which was €239,200 in 2013.

IN FOCUS: DUBLIN, IRELAND | PAGE 8

RIVER LIFFEY

HVS forecasts that the value per room will rise to €212,000 by 2018, an increase of around 18% on 2013 values but still below the 2006 peak.

Conclusion

Ireland’s economy has suffered severe setbacks over the last decade. Recession gripped the country in 2008, resulting in the banking industry tightening its belt on lending and investment and development coming to a grinding halt. In 2010, as part of a large bailout package, Ireland borrowed €22.5 billion, saving the country's economy from collapse.

The economy is now on the mend and GDP growth is forecast to be around 3% on average over the coming years. In addition, it was recently announced that the country will repay almost 40% of its International Monetary Fund loan early; thus reducing the interest bill and freeing up funds for investment in order to further grow the economy.

Ireland’s return to growth, combined with the strengthening of economies across Europe and worldwide from the financial turmoil, is good news for Dublin’s hotel market. After falls in visitation, as leisure travellers benefit from more disposable income once more and business budgets become less constrained, hotel stays and thus hotel performance are expected to rise.

In addition to Dublin’s traditional feeder markets (mainland Europe, Britain and the USA), statistics from Dublin Airport suggest that visitation to the city from the Middle East and North Africa region is on the rise; this market could be on its way to becoming an important source of visitation to Dublin. Tourism in the Irish capital is heavily reliant on overseas travellers, which make up 75%

of total visitation to the city. Any disturbances in the economies of the feeder markets can have a marked effect on the city’s tourism revenue; however, the USA and most countries in Europe are in various stages of growth and recovery.

In terms of hotel performance in the city, demand has outstripped supply, owing to the decline in development and hotel closures during the recession. After five years of falls in RevPAR, year-to-October 2104 data show a dramatic upswing with double-figure growth. There is room for improvement as performance indicators are still below 2006 peaks, but it is worth noting that the historically high average rates were due to big-spending UK and US guests; post-recession, the city’s source markets are now more diverse with guests coming from all over Europe and these guests are now more cost conscious. Thus, the recent high performance indicators might not be sustainable long term. However, hotel prices in the city are much higher than those of regional UK hotels and this bodes well for the Dublin market. Upscale properties make up a huge percentage of the city’s supply and there is currently only one hotel in the pipeline, highlighting potential opportunities for economy or luxury developments in the market. As developers and investors return to Dublin a supply/demand balance could be on the horizon.

Investment in Dublin’s hotel market seems to be flowing once more, with nine hotels gaining new owners this year so far, compared to two sales in 2012 (of above €7.5 million). It has been a busy year for NAMA and it still has assets on the market. Additionally, hotel values in the market are continuing to rise.

With a positive forecast for the Irish economy and steady increases in visitation, investment and values, Dublin seems to be a market to look out for. The ‘Celtic Tiger’ might have temporarily lost its roar but it is definitely back on the prowl!

© HVS December 2014

HVS – London Office | 7-10 Chandos Street, Cavendish Square, London W1G 9DQ, UK

www.hvs.com

About HVS

HVS is the world’s leading consulting and services organisation focused on the hotel, mixed-use, shared ownership, gaming, and leisure industries. Established in 1980, the company performs 4,500+ assignments each year for hotel and real estate owners, operators, and developers worldwide. HVS principals are regarded as the leading experts in their respective regions of the globe. Through a network of more than 30 offices and 450 professionals, HVS provides an unparalleled range of complementary services for the hospitality industry. www.hvs.com

Superior Results through Unrivalled Hospitality Intelligence. Everywhere.

About STR Global

STR Global provides clients – including hotel operators, developers, financiers, analysts and suppliers to the hotel industry – access to hotel research with regular and custom reports covering Europe, the Middle East, Africa, Asia

Pacific and South America. STR Global provides a single source of global hotel data covering daily and monthly performance data, forecasts, annual profitability, pipeline and census information. STR Global is part of the STR family of companies and is proudly associated with STR, RRC Associates, STR Analytics, and HotelNewsNow.com.

About the Authors Louise Fury is a Senior Editor with HVS’s London office. Louise holds a BA (Hons) in English Language and Literature. She joined HVS as a junior editor in 2006 and since then has edited and produced a number of assignments across Europe, the Middle East and

Africa. Louise is also author of the HVS EMEA Hospitality Newsletter.

Arlett Oehmichen MRICS is a director with HVS’s London office, specialising in hotel valuation and consultancy. Arlett joined HVS in 2006 after experience in the hotel investment industry as well as operational hotel experience. Arlett holds a Masters in Real Estate Investment and Finance

from Reading University, UK and is a member of the Royal Institution of Chartered Surveyors. She has considerable experience of feasibility studies and valuations throughout EMEA.

For further information, please contact:

Arlett Oehmichen – Director, HVS aoehmichen@hvs.com

+44 20 7878 7753

Louise Fury – Senior Editor, HVS lfury@hvs.com

+44 20 7878 7750

Wolfgang Schlamminger – Forecast & Research Analyst, STR Global wschlamminger@strglobal.com

+44 20 7922 1964

Naureen Ahmed – Manager, Marketing and Analysis, STR Global nahmed@strglobal.com

+44 20 7922 1965