The Nordic hotel sector would benefit from more consolidation to create a ‘healthy’ hotel market, according to Peter Wiwen-Nilsson, who joined Nordic real estate group Brunswick Real Estate in September to launch its new hotel arm.
‘I think we’ll see more consolidation because it’s healthy for the industry. At the moment, 35% of hotel rooms in Sweden are controlled by just three players – Scandic, Choice and Best Western. We definitely need to see more consolidation going forward.’
While Wiwen-Nilsson would not be drawn on which players are likely to join forces, he said that further mergers are a given because ‘the big keep getting bigger’: ‘The industry also needs to consolidate in order to stand strong against the OTAs.'
There have been a number of mergers and acquisitions in the past two years. This month, Scandic Hotels, the largest hotel operator in the Nordics, will take over one of Norway’s most prominent hotels, Hotel Norge in Bergen. Scandic Hotels intends to carry out substantial renovations, which are due to be completed by the autumn of 2017. The renovated hotel area is projected to be 20,000 m2 with 390 rooms and extensive dining and meeting facilities. Scandic Hotels also acquired Norwegian rival Rica Hotels, the 72-strong Nordic chain, for an undisclosed sum in 2014.
Hotels in the region are also gaining in popularity, according to Wiwen-Nilsson. ‘Investors used to look at hotels with scepticism – they thought, perhaps unfairly, that they are a risky asset class. However, as investors have more capital to deploy and the hotel operator market has changed - a few strong operators have emerged - interest in hotels has been renewed. As a result, they are now viewed as an appealing asset class.’
Yield compression
The yield compression over the past five years reflects that shift: today, prime hotel yields in Stockholm’s CBD are around 4%, according to Brunswick Real Estate. In 2009 to 2010 they would have been around 6%. ‘It’s questionable how much further yields can compress,’ he said.
In August Swedish developer Skanska sold Hotel Hagaplan in Stockholm to Swedish pension fund SPP for around SEK 970 mln (€102.24 mln). The combined hotel and office building is located in Hagastaden, next to Hagaplan Square and a planned new metro station. Sweden’s Elite Hotels has signed a 20-year lease for eleven of the 17 floors, comprising 222 hotel rooms, a restaurant and conference rooms. The new building is due be completed in November 2017.
So far this year, around SEK 3bn of hotels have been transacted in Sweden, according to Brunswick Real Estate, compared to SEK 5.5 bn in 2015. However, investors are not only looking at Stockholm. Smaller cities are also piquing investor interest because they are outperforming their larger counterparts on a revenue basis, according to Wiwen-Nilsson: ‘In the three year period to October 2015, revenue per available room increased by 8% in Stockholm, 6% in Gothenburg and by 13% in the rest of Sweden – i.e. in all cities but Stockholm, Gothenburg and Malmö. Growth has been stronger in smaller regional cities as demand there has risen because the capacity growth hasn’t kept pace,’ he explained.
The Nordics was Europe’s third largest market for property transactions in 2015, accounting for 15% of the market, accounting to Leimdörfer, the investment banking arm of Brunswick Real Estate. The UK took the top spot, with 35%, followed by Germany (20%), France (9%) and the Netherlands (4%).