Business And Leadership: 25pc of Irish hotel rooms must close - Bacon

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25pc of Irish hotel rooms must close - Bacon

12.11.2009
A quarter of Irish hotel rooms need to be closed down, while the sector taken as a whole is insolvent, according to a new report from the Irish Hotel’s Federation (IHF).

The IHF report, produced by Peter Bacon, the economist who recommended the Government establish NAMA, says that since 2005 the number of hotel rooms in Ireland has risen rapidly by about 15,000 or 32pc.

However, the global recession has resulted in a significant decline in demand for hotel rooms, leading to the heavy discounting of room rates. Adjusted for inflation, revenue per available room fell from €57 in 2000 to just over €38 in 2008, the report says.

This fall has accelerated and hotel prices have fallen by 26pc in 2009 compared to 2008, which is the steepest fall of any major European country, making Ireland the cheapest western European country for hotel accommodation, Bacon says.

Fundamental issue is over-supply
The report concludes that the fundamental issue in the hotel sector is one of over-supply, which it says can only be dealt with through the planned removal of 15,000 hotel rooms from the existing stock, and that this process should begin before the 2010 peak season.

The report also highlights the damage which is being caused to the hotel sector as a whole by financial institutions and banks supporting unviable and insolvent enterprises.

According to Bacon, market forces would normally have forced hotels with weak business models to close. However, he says this has not happened, primarily due to the reluctance of banks to realise losses and write down loans granted to hotels that have no prospect of recovery.

This is because of the additional pressure this would place on the capital adequacy of banks’ own balance sheets and a reluctance to act in advance of the introduction of NAMA, Bacon notes.

The report also estimates that new hotels need to remain open for seven years to allow investors to retain capital allowances.

“This report is possibly one of the most detailed and comprehensive analyses of the sector ever undertaken and includes very serious measures to improve the viability of the sector. The report calls for the urgent active participation of the stakeholders involved including the banks and financial institutions, the Government, the tourism bodies and the hotel sector itself to seek effective solutions,” said Matthew Ryan, President of the IHF.