hotel expansion in northern ireland€¦ · northern ireland in the region of 25% will have a...

Hotel Expansionin Northern IrelandA report from the Northern Ireland Hotels Federation on hotel investment and performance, including a forecast of future market conditions.

OCTOBER 2018

Supported by research, data and analysis from

9,500 hotel bedrooms by the end of 2018

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Hotel Expansion in Northern Ireland 3

IntroductionThe hotel sector in Northern Ireland has enjoyed a period of success. 2016 and 2017 were record years and the industry now has a very fresh, new product.

In October 2017, the NIHF produced an economic impact report that highlighted the extent of private sector development across Northern Ireland’s hotel sector. The report stated that by 2020, buoyed by recent tourism performance and projections for future growth, it is expected that half a billion pounds of investment will deliver 10,100 hotel rooms across 151 hotels, an increase of 25% in room stock.

One year on from that analysis, progress has been brisk, with expansions and new hotels coming on stream. In October 2018, there are 141 registered hotels in Northern Ireland. Openings include the Grand Central Belfast, Maldron Belfast City Centre and the AC by Marriott. There were also additional rooms added to Bullitt Hotel and Ten Square, both in Belfast. Construction continues on a number of significant projects in Belfast city.

This report refreshes the October 2017 analysis to assess the economic impact of the new and expanded hotels.

The Evolution of the NI Hotel Market

The hotel landscape in Northern Ireland has altered immeasurably since the turn of the century. There have been several periods of exceptional growth. The last of these, between 2005-9 saw three significant changes; the introduction of a considerable number of budget branded hotels, the arrival of international brands and the upgrading and re-classification of existing properties. Consumer

preference and choice were partly behind these factors but a desire to differentiate from the lower star-rated budget-branded hotels saw many independent hotels invest and move up the classification scale. Hotels remain the preferred accommodation choice - 83% of visitors requiring lodgings choose to stay in a hotel.

Another development is a number of new accommodation products in the market: since the revision of the Tourism Order in 2011, the serviced accommodation sector now has eight categories with the addition of guest accommodation, bunk houses and student accommodation. Significant investment in this product has added in the region of 3,000 rooms to the accommodation mix. Similarly, serviced apartments have grown in numbers and compete directly with hotels for business. A breakdown of these accommodation types is shown in Chart 2.

Hotel bedroom stock has reached record levels breaking the 9,000 mark in June 2018 and is likely to reach 9,500 by the end of the year. This is the biggest growth spurt for nearly a decade and while the bulk of the expansion is in Belfast, it is important to note that Derry-Londonderry, with a planned 200 plus rooms, will see a similar percentage growth. Pockets of development have also appeared beyond these urban hubs with resort projects and boutique properties starting to pop up on a region wide basis.

Published in October 2018 byNorthern Ireland Hotels FederationThe McCune Building, 1 Shore Road, Belfast BT15 3PGTel: 028 9077 6635 Web: nihf.co.uk

Additional research and analysis bySTR, Tourism Economics and Baker Tilly Mooney Moore.

© 2018 Northern Ireland Hotels Federation

Chart 1: Northern Ireland Hotel Room Growth Forecast

Chart 2: Accommodation stock by Sector based on Room Numbers

Table 1: Impacts of current expansion phase. Source: Baker Tilly Mooney Moore

Accommodation Stock by Sector based on Room Numbers

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2500

5000

7500

10000

Hotels Guesthouses Guest Accom B&B Self Catering

Northern Ireland Hotel Bedroom Growth 2016-20

7500

8000

8500

9000

9500

10000

10500

11000

2015 2016 2017 2018 2019 2020

10,142

9,742

9,416

8,0307,8847,823

Star Rating Employment Wages Turnover GVA

5-Star 742 £14m £20m £10m

4-Star 4302 £78m £232m £121m

3-Star 2849 £52m £128m £67m

2-Star 90 £1.6m £11m £6m

1-Star 7 £0.1m £0.9m £0.4m

Budget 594 £11m £67m £35m

Ungraded/Awaiting 407 £7m £33m £17m

Total 8991 £164m £491m £256m

Impact of Expansion +925 +£32m +£71m +£37m


By 2020, even taking a conservative view of current expansion plans, Northern Ireland should have 10,000 hotel bedrooms across 151 hotels.

The investment level of projects underway and those likely for completion and in market by 2020 is likely to exceed £500m. This can be apportioned as follows: £250m in new developments in Belfast, £150m in new developments in the rest of Northern Ireland and a further £100m+ in expansion, refurbishment and upgrades to existing hotel properties. A further 4% of hotel turnover will be spent on refurbishment.

By 2020, the additional hotel stock is estimated to support turnover of approximately half a billion per annum. At this level of performance, the sector would support 13,064 jobs across the whole economy, support £392m in wages and close to £578m in GVA.

Bedding in – the impact of recent hotel developments

In October 2017, hotel bedroom stock was c.8,000. Since then, expansions and new openings have delivered an additional 1,200 rooms. The majority of these new rooms fall into 3 and 4-star classifications. The estimated impacts associated with the additional rooms are:

Direct ImpactsNIHF’s calculations suggest that 925 additional jobs, generating wages in excess of £31m, are being supported by the hotels that have come on stream this year. Additional turnover generated is just over £71m more, resulting in total hotel turnover of close to £500m.

This turnover is supported by Revenue Per Available Room (RevPAR), which is expected to reduce slightly in 2018 before declining further as all the new rooms feed through. Gross Value Added is estimated as being £37m higher from the new and expanded hotels.

Wider impacts of expansionApplying the multipliers developed through the Northern Ireland input-output tables for the relevant sectors enables an assessment of the wider impacts which suggests that the hotels and expansions that have entered service over the past 12 months are supporting a total of 1,202 extra jobs across the whole economy. This is generating a Gross Value Added contribution to the economy of £31m.

Direct Indirect Induced Totals

Jobs 925 68 210 1202

Wages £32m £13m £23m £67m

GVA £37m £15m £27m £79m

More to comeThe expansion of the hotel market continues, with the sector remaining on course to deliver over 10,000 rooms by 2020. The economic impact analysis suggest that this remaining build programme will support a further c1,050 jobs and support wages of close to £20m. Direct, indirect impacts and induced impacts of the remaining build suggest close to 1,400 more jobs and £50m in wages could be supported. Turnover growth, whilst still positive, is set to slow down in 2018 and 2019. This is as a result of new supply in the market, which places downward pressure of Average Daily Rates in the short term.

Applying the same multiplier model as before produces the following whole economy impact of the £500m investment in hotel stock since 2016.

Direct Indirect Induced Totals

Jobs 10049 738 2277 13064

Wages £183m £77m £132m £392m

GVA £270m £113m £195m £578m

A Strong Hotel Expansion Pipeline

Demand has increased by 6%

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Chart 3: Northern Ireland Hotels Main KPI Percentage Change, Year to Date, August 2018. Source: STR


On a global basis it’s a largely positive outlook with tourism outpacing the global economy on a year on year basis.

In Northern Ireland the wider economic context remains uncertain. Job creation remains strong but does not mask several weaknesses that include stagnating real wages, low levels of productivity growth and significant levels of economic inactivity. Tourism has, however, been a consistent bright spot in economic performance. An increase in hotel rooms in Northern Ireland in the region of 25% will have a postive impact.

The average hotel in Northern Ireland now has 64 bedrooms. A number of larger properties have opened and the market continues to be dominated by three and four-star hotels, with these two categories accounting for 76% of Northern Ireland’s hotel room stock.

Hotel performance in 2017 was very strong resulting in a record-breaking year. Hotel turnover grew to almost £500m. This continued into 2018 with a strengthening of

the room rate, occupancy and RevPAR levels. As reported, additional product was added to the market culminating in a massive influx of rooms in June 2018. Over the summer the market began to falter in Belfast where most of the room growth has occurred. Occupancy fell from June onwards and now sits 2.7% behind 2017. Room rate is also starting to slip with an 8.2% fall in August. It is a similar picture for regional Northern Ireland. The Derry-Londonderry market continued at a steady pace, tracing 2017 levels of occupancy while growing room rate and RevPAR. South West Ulster is experiencing a downward trend in occupancy but continues to grow Average Daily Rate (ADR) and RevPAR. Anecdotal evidence from all markets suggests a nervousness on the ground with lead times reducing, pressure on room rates and a surplus of supply.

Current Hotel Performance

Northern Ireland – Market ForecastOccupancy, ADR, RevPAR, GBP, 2018 and 2019

ADR & Occupancy

-0.3%2018

-4.1%2019

-3.4%2018

-4.7%2019

-3.7%2018

-8.6%2019

RevPAR

Belfast – Market ForecastOccupancy, ADR, RevPAR, GBP, 2018 and 2019

70.5%2019

76.3%2018

79.4%2018 YTD

£72.002019

£77.802018

£79.742018 YTD

£50.702019

£59.402018

£63.312018 YTD

Occupancy ADR RevPAR

Derry/Londonderry – Market ForecastOccupancy, ADR, RevPAR, GBP, 2018 and 2019

66.9%2019

69.6%2018

70.6%2018 YTD

£66.102019

£66.202018

£66.772018 YTD

£44.302019

£46.002018

£47.142018 YTD


Northern Ireland – Market ForecastOccupancy, ADR, RevPAR, GBP, 2018 and 2019

71.4%2019

75.0%2018

76.6%2018 YTD

£74.802019

£78.002018

£79.512018 YTD

£53.402019

£58.502018

£60.892018 YTD


Belfast – Market ForecastOccupancy, ADR, RevPAR, GBP, 2018 and 2019

ADR & Occupancy

-2.5%2018

-7.4%2019

-6.4%2018

-7.7%2019

-8.7%2018

-14.5%2019

RevPAR

Derry/Londonderry – Market ForecastOccupancy, ADR, RevPAR, GBP, 2018 and 2019

ADR & Occupancy

4.2%2018

0.1%2019

0.8%2018

-3.8%2019

5.0%2018

-3.7%2019

RevPAR

Chart 4: Northern Ireland Market Forecast. Source: STR

Chart 5: Belfast Market Forecast. Source: STR

Chart 6: Derry-Londonderry Market Forecast. Source: STR

Northern Ireland

» Supply growth reducing over the coming two years after a period of rapid growth.

» Demand high in 2018 but reducing significantly in 2019 and 2020. Demand also does not meet the supply curve for an extended period estimated to be 2022. At this stage the market will have absorbed the current supply and a new cycle of growth is forecast to begin. Visitor numbers as you would expect are also set to grow over the period.

» Occupancy falling in 2018 and 2019. » Average Daily Rate falling in 2018 and again in 2019.

» RevPAR down in 2018 and dropping significantly in 2019.

Belfast

» Supply growth dropping significantly in the coming year after a period of rapid growth but more product in the pipeline after 2020!

» Demand high at the start of 2018 but reducing significantly into 2019 and will struggle to meet market influx. Demand also does not meet the supply curve for a considerable period but this could be further influenced by more supply coming as indicated in the pipeline.

» Occupancy falling in 2019 and slowly returning to small growth in 2020.

» Average Daily Rate knocked in 2019 but steadies in 2020 with RevPAR following a similar trend.

Derry-Londonderry

» Supply due to come on stream in 2019 and 2020. City could grow by 25% in terms of rooms over the coming year after a period of rapid growth but more product in the pipeline after 2020.

» Demand building in 2018 albeit slowly until 2020.

» Occupancy reducing as new supply enters the market but showing an upward trend in 2020.

» Average Daily Rate shows no major change in this metric with little movement until 2021.

» RevPAR reducing until 2020 but returning to a positive from then.


Changes, challenges and a period of market realignment lie ahead. A period of significant hotel growth is just tailing off.

Approximately £500m has been invested in the current expansion phase creating around 1,000 jobs. There are now 141 hotels in Northern Ireland with a complement of 9,177 bedrooms. It seems that every time we agree an exact figure, another tranche of rooms have been released. Room numbers have climbed steadily throughout with a further 500 in the pipeline. Belfast in particular has experienced significant growth with a 31% increase in rooms. However, it is anticipated that new builds in Belfast will slow in 2019.

However, the market is far from dormant. 2019 will see expansion in Derry-Londonderry and the Newry and Mourne region. There are also several planned developments for the North Coast but these remain dependent on what has become a protracted planning process. Green shoots of growth are appearing in a number of other locations as many seek to make the most of an expanding tourism sector.

The NIHF has been working with leading benchmarking company STR to produce a forecast for the market. STR work with Tourism Economics, part of Oxford Economics, to forecast for 78 cities world-wide. Belfast will join this grouping giving those in the market the opportunity to look at future trading, assess performance and revise their sales strategy accordingly.

The methodology is a complex one overlaying market conditions with a suite of models to accurately track and forecast hotel performance across a number of markets worldwide. Robust equations have been econometrically estimated that closely follow past movements in hotel performance, as measured by STR data. These equations are used to forecast hotel performance using economic forecasts from Oxford Economics’ global macroeconomic database, as well as Oxford Economics’ global city and region forecasts.

Hotel Performance Forecast

Chart 7: Northern Ireland, Occ, ADR & RevPAR % change, Historic 2012-2017, Forecast 2018-2022. Source: STR


These forecasts are augmented with specific intelligence to determine the additional effect on hotel demand and ADR of any events hosted within that market. The key drivers include GDP, currency and net wealth.

Figures from Tourism Economics and STR suggest that room sales have increased to 2.2m in 2017, up from 2.0m in 2016. Room sales are projected to increase consistently between now and 2022, breaking through 3m sales.

Much of the growth in hotel stock has been in Belfast, where room nights have increased by close to half a million since 2010. This growth in supply is expected to top out at just over 2 million bed nights early in the next decade.

The introduction of new supply to the market of growth in Belfast has placed downward pressure on occupancy rates, room rates and

RevPAR. Forecasts suggest that Q4 2018 will see some turbulence in the market and these features are likely to continue well into 2019. It is important to note that in Belfast, as in all markets in NI, there is an increase in numbers of visitors and whilst demand grows it has not risen sufficiently to keep pace with supply.

The next market to experience a major influx of stock will be Derry/Londonderry where room numbers are likely to increase by 20-25%. Pockets of growth are also being reported along the North Coast and in the Newry and Mourne region. It would be difficult to accurately predict the impact of these projects on occupancy and room rates at this time but there is no doubt that increased visitor numbers are required to support these new developments.

Map 1: UK Pipeline Opening 2018/19 – by Room Count. Source: STR

Overnight Trips Expenditure

Map 2: Northern Ireland Visitor Mix 2017. Source: NISRA


Additional investment has revealed many opportunities for the sector but also highlighted a number of constraints.

The hospitality sector has undertaken significant investment in hotel product. It is now the case that half of NI’s hotel rooms are under 15 years old, a remarkable statement of confidence in Northern Ireland. Maintaining the tourism momentum that has built over the recent past will be key to ensuring that recent investments flourish. There are however a series of challenges and opportunities that confront the sector.

The challenges, aside from growing the market, are still centred on issues around skills and staffing, as well as Brexit, which has resulted in considerable uncertainty in the market. Added to this are the issues around tax, in particular VAT, access constraints and capacity at key attractions. The market has started to falter, which is evidenced by recent statistics on occupancy, ADR and RevPAR, and is experiencing a shudder as we come to the end of an era of exceptional trading.

On a positive note, the opportunities of a well invested larger hotel sector are many, from improving the attractiveness of a destination, to enhancing the ability to attract bigger events and larger conferences. The local hotel sector has strong prospects. There is a good mix of international brands plus a number of unique Northern Ireland products. There’s a room to suit any budget and the customer now has more choice than ever before. Attracting more visitors is paramount. We need to increase the size of the tourism cake to ensure that each hotel gets a good slice of business. With three and a half million rooms to sell in 2019, a step change in activity is required. Demand is increasing and with increased marketing intervention could be further stimulated. Having spent in the region of £500m, the hotel sector is keen to see a return on this investment and a realisation of the industry’s potential.

Maintaining Momentum

Chart 8: Belfast, Absolute Demand, Occupancy and RevPAR. Source: STR

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1,400,000

1,600,000

Jan-

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r-09

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b-10

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0De

c-10

May

-11

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g-12

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Demand Occ revPAR

Belfast, Absolute Demand, Occ & RevPAR Jan 2018 to Aug 2018Belfast – despite all the new supply, demand is still very strong

83% of visitors stay in hotels

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14 Hotel Expansion in Northern Ireland


This report has been written under the shadow of Brexit. As the March 2019 Brexit date approaches, many uncertainties remain that, if unresolved, could place significant downward pressure on the tourism sector.

The hospitality sector has enjoyed strong performance, and has matched this with significant investment in developing new and expanded hotels. Support, by way of a more favourable VAT rate, would enable further investment and help with competitiveness.

A modern, attractive hotel stock creates positive perceptions of Northern Ireland and contributes significantly to economic

growth. This capital investment is vital but a shortage of skilled and available people remain the number one constraining factor in the industry’s future. As a sector, there is a realisation that a “re-branding” is required to address any perceived negative image among prospective recruits.

With the right promotion, timely development of new visitor attractions and improvements to core infrastructure, Northern Ireland tourism can thrive.

The hotel sector has done its part; government needs to back it.

Brexit, a massive increase in supply and a political vacuum present challenges that need to be resolved with additional support.

Conclusion

hotel expansion in northern ireland€¦ · northern ireland in the region of 25% will have a...

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