Northern Ireland tourism industry faces key season in nervous anticipation
Economy Watch by Andrew Webb, economist, Grant Thornton
After 20 years of working in economics and countless hours modelling what might happen if X, Y and Z change, I am concluding that more and more importance is falling to one key element that can't be reliably controlled or modelled. Confidence.
Levels of consumption, employment and investment seemingly depend on our collective mood at any point in time. We will all have personal examples of when we have taken a view on our confidence/mood before taking the plunge on spending.
At a societal level, it can be driven by global events, politics and even how well national sports stars or teams are performing. At a local level, confidence and mood can be as volatile as whether the sun has come out.
One area where I have been keenly observing the confidence and mood over a long period of time is in our tourism sector. Over the past two years or so, the confidence among hoteliers has been sufficient to deliver many more hotel bed spaces across Northern Ireland.
Just think, in March 2018 there were around 18,200 beds available in hotels here. Twelve months on, the latest figures tell us that there are 20,670. Close to 2,500 more beds to sell every night is nearly a million bed nights across a year and there are more in the pipeline, such as the George Best Hotel.
Delivering on selling that many additional beds is a big task. I watch with interest and am unashamedly willing the sector to success, having worked on various economic impact assignments with them and having an appreciation of the significant contribution the tourism sector makes to our economic performance.
I was therefore pleased to spend time among the sector again this past week when I was asked to give an economic overview to the NI Hotel Federation's Business Outlook. I was particularly interested to hear from hotel benchmarking firm STR and their analysis of hotel performance and the forecast for the season ahead.
Please log in or register with belfasttelegraph.co.uk for free access to this article.
I took four key themes away from their insights.
Demand is not a problem: STR was at pains to point out demand for hotel rooms is not a cause for concern. It is easy to look up the oft quoted figures for occupancy and see the first quarter of this year recorded room occupancy rates at 58% compared to 63% for the same quarter a year ago. This misses the point that (as there is a lot of extra supply) the number of rooms sold is actually 4% higher than the same period a year ago. The number of beds sold is almost 10% higher.
A period of oversupply: while demand is growing well, it seems so much supply coming onto the market in a condensed timeframe has overshot demand. This is not uncommon in expansion of this scale and the expectation is that demand and supply will regain an alignment in the medium term.
It would however seem that the growth phase for hotels has passed. With recent student accommodation developments (which can operate as conference/tourist accommodation outside of term time) and Airbnb's rise in impacting on the market, the mood in the room seemed to be that, certainly in Belfast, new hotels could be a very risky proposition.
Pricing nervousness: it is a natural instinct to drop prices to try and sell more product. This has happened to a certain extent across the NI hotel stock. The hotels in what is considered 'mid-scale' have dropped average daily rates by around 8% in the year to date. At the upper end of the scale, average daily rates are around 2% lower than last year. The message from the session was 'hold your nerve' rather than race to the bottom on pricing and do long term damage to performance.
Events are crucial to success: it was fascinating to see hotel booking statistics and projected occupancy levels over the coming months. The peaks in demand as events happen reiterate the importance of continuing to give people a reason to use hotels.
For example, George Ezra's upcoming Belsonic Music Festival performance looks set to deliver occupancy in Belfast over 90%.
It was also interesting to see how the Open golf championship in Portrush in July, the jewel in the crown of marketing efforts for some time, does not appear to have had any impact on Belfast bookings. Booked business is well off the pace compared to 2017 and no better than 2018. At the time of writing, a fifth of rooms are still available during Open week.
Time will tell what the impact of the golf on occupancy levels is, but the pictures of Northern Ireland's north coast broadcasting across the world will drive a wider legacy impact for years to come.
The concern for the sector is now growing that there are no major events in the pipeline to follow the golf.