New hotel capacity began to outpace growth in demand for rooms in 1998, an all-Ireland survey of the sector has revealed. The development is the main factor behind a fall in room occupancy levels, which have declined across nearly all hotel categories.

Total room supply at the end of last year was estimated at 32,500 rooms, representing an increase of around 7 per cent over end 1997. In Dublin 20 new hotels opened or increased in size during 1998, adding 1,500 new rooms and bringing the total available to 9,200. This represents an increase of almost 20 per cent over the end 1997 figure, and 44 per cent over the end 1996 figure.

However, the Ireland and Northern Ireland Hotel Survey 1999, conducted by Horwath Bastow Charleton, found that average room rates have held firm despite the drop in occupancy.

Room occupancy averaged 67 per cent in 1998 in the Republic, a drop of three percentage points over 1997. The figure for Dublin was 72.2 per cent in 1998, a drop of 3.6 percentage points over 1997. In Northern Ireland the drop was just more than one percentage point, to 56.7 per cent.

Overall profits dropped marginally, though the results varied across hotel categories. Luxury hotels experienced a decline in both sales and profitability; first-class hotels experienced growth in sales but a marginal decline in profitability; and both economy and mid-price hotels experienced strong growth in both sales and profitability. The strong growth in demand for rooms continued through 1998.

Mr Colm Deignan, of Horwath Bastow Charleton, said the hotel sector was "facing a period of increasing competitiveness, likely to be reflected in another year of softening occupancies, this time allied to an erosion in average room rates".

Mr Deignan said the pool of available quality staff is not keeping pace with increasing hotel capacity and competition for such staff as exist is manifesting itself in "disproportionately high hotel wage level increases. This would in part explain the static or diminished profitability of larger and upper category hotels".

The effect of the staff shortages means that the proposed national minimum wage of £4.40 per hour may now only have "marginal" impact on the sector, he said. In Northern Ireland occupancies declined only marginally in 1998 despite 10 per cent growth in room stock. Although the decline continues a trend from previous years, occupancy overall remains above pre-1994 ceasefire levels. Despite the minor reduction in room occupancy, total income per room in Northern Ireland actually increased over 1997, from £34,745 sterling to £37,794 sterling. Stronger food and beverage sales were the prime reason for the increase but their contribution was unable to prevent pre-tax profit in 1998 falling to 9.6 per cent of revenue, from 10.5 per cent of revenue in 1997.

The Minister for Tourism, Sport and Recreation, Dr McDaid, said the outlook for tourism "looks bright, with the annual growth trend which marked the 1990s also set to continue in similar dramatic fashion year on year in the new century's opening decade".