Ireland’s resurgent hotel sector is facing competition for labour that is likely to push up costs for operators as they battle for staff in an economy with falling unemployment, a new study has warned.
The annual Crowe Ireland survey of the country’s hotel sector said that the industry has enjoyed the seventh consecutive year of increased turnover.
It’s now firing on all cylinders across the country, with record profitability, record occupancy and record room rates in all regions.
That also raises the prospect of the special 9pc Vat rate introduced by the Government in the depths of the financial crisis coming under closer scrutiny as budget day approaches.
In a review of the 9pc Vat rate published yesterday, the Department of Finance said it had cost the Exchequer €2.6bn since its introduction in 2011, and was now a “significant deadweight”. The Department said the reduced rate cost €490m in 2017.
The Crowe Ireland survey found that average room rates across the country rose 6.9pc last year compared to 2016.
In Dublin, the average room rate was 6.8pc higher at €136.96. The pace of growth in average Dublin room rates last year was half that recorded in 2016, despite just 237 new rooms coming on stream.
In the southwest and western seaboard, average room rates soared 8pc and 9.7pc respectively to €100.67 and €87.49.
Luxury hotels saw room rates rise 6.2pc to €218.02, a new record. Economy hotels saw the biggest growth in average room rates, which rose 11.8pc last year to €68.43.
The Crowe Ireland survey found that Dublin hotels increased their profits by 12pc. Profits at hotels in the southwest jumped 17.4pc on average, and by 17pc along the western seaboard. At hotels in the midlands and east, profits were 13.9pc higher on average.
But the report insisted that strong profitability is required to spur the €1.5bn investment it says is needed to deliver an extra 11,000 hotel rooms across the country over the next seven years.
Speaking to the Irish Independent, Crowe Ireland partner Aiden Murphy said that payroll cost increases were the most significant threat to the hotel sector’s profitability.
He said that given the reduced unemployment rate in Ireland, the premium that hotels must pay for staff above minimum wage “will have to increase”.
The minimum wage is €9.55 an hour. Last month, the government agreed a recommendation by the Low Pay Commission that the rate rise to €9.80 from next year.
Mr Murphy said that hotels typically pay between €1 and €3 an hour above minimum wage.
“There is a concern that the payroll cost for hotels, which was 34.5pc of revenue in 2017, could return to much higher levels,” he said. “Going back seven years, it would have been as high as 38pc or 39pc.”
Mr Murphy also said that accommodation and other costs in Dublin could push hotel workers to move to hospitality jobs outside the capital.
“There’s a concern for certain staff in Dublin about the cost of living increasing,” he said, pointing out that workers at regional hotels would find the cost of living much lower.
Ireland had a record 9.9 million overseas visitors last year. The figure has been projected to hit 13.7 million by 2025.
Mr Murphy said certainty is needed regarding the 9pc Vat rate.
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