Industry Update
Opinion Article19 November 2015

State of the Nordics 2015: The more things stay the same, the more things change

By Demian Hodari, Associate Professor of Strategic Management at the Ecole Hôtelière Lausanne (EHL) and Sarah Sonne Larsen , Senior Hotel & Spa Consultant at Nordic Hotel Consulting

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As demonstrated through a survey of the delegates who attended the 6th annual HotCop Hotel Investment Conference held in Copenhagen earlier this year, there is a continued significant optimism about the region's growth and performance potential. However, the data and panel discussions revealed some important challenges – and a few possible solutions – for international firms hoping to expand their regional presence.


Conference attendees demonstrated significant market confidence for the second consecutive year. According to our survey, 67 percent of the respondents described themselves as optimistic about the region's upcoming five years, while an additional 11 were very optimistic. When analyzed across professions, the results held true for operators, investors, developers, and financial players alike.

Throughout the conference, speakers and attendees repeatedly described the contemporary Nordic hotel market as dull, uniform, bland, and insular to a point where it largely prevents a healthy inflow of new ideas and players, which could shake things up and challenge the status quo. However, it was clear from the impressive turnout of international players, including Starwood Capital, CitizenM, Hoxton/Ennismore, Hard Rock Hotels, 25hours, Hyatt, Four Seasons etc., that many also consider the Nordics a development-ripe market, of which they are interested in a taste.

Many of the conference sessions, and particularly the discussions from the audience, focused on providing a better understanding of sector's nuances and possible success factors for international players. Penetrating the close-knit regional hotel industry is challenging for many outsiders, due to the market's particular idiosyncrasies, which not only distinguish it from other geographic regions, but also contradict many of the preferred strategies of most international hotel firms. Some of the key entry barriers, as identified by the conference delegates, include:

  • A strong owner-preference for leases
  • Notably high operational costs
  • A strong dominance by regional operators

In a discussion focused on active vs. passive investors, panelists Peter Tengström from Midstar AB, Pandox' Jacob Rasin, and Oscar Crohn from Solstra Capital Partners, expressed a common sentiment that regional chains have a particularly strong skillset when it comes to navigating and operating in the Nordics. For example, the high cost level has made Nordic operators very cost-efficient, and enabled them to keep operational costs impressively low without negatively affecting the guest experience. In addition, with regard to leases, most local operators have managed to find a way to structure such deals and operate within their confines to the satisfaction of their shareholders.

The panelists also concurred, however, that there is a strong need for more diversification with a larger share of international brands. The panel's moderator Christian Kielgast, a Partner at Nordic Hotel Consulting, commented that more diversification is important, as it will create an added international interest in the Nordic destinations and enable the market as a whole to increase performance. Furthermore, diversification and an inflow of more international players mean new and interesting investment possibilities and value creation opportunities.

One proposed solution for increasing such diversification is to continue the recent trend of collaborations between local operators and international brands. These already exist in Scandinavia, e.g. at the AC Hotel Bella Sky Copenhagen and the Crowne Plaza Copenhagen Towers, where BC Hospitality Group teamed up with Marriott and IHG respectively. Another example is Radisson Blu Riverside in Göteborg, operated by Winn Hotels and a Rezidor brand. According to Kielgast, such collaborations demonstrate a proven, feasible way for international players to enter the Nordic market, because their local partners are often open to entering into a lease with the property owner, or as in the case with BC Hospitality Group, present strong owner-operator partners. These collaborations create a bridge and offer the best of two worlds. Namely, the local expertise and important cost-efficiency of the management company, coupled with a valuable brand name, international marketing and an extensive distribution network from the international player. The ability of such collaborations to steer around the main entry barriers, make them exemplary role models for the future.

While there was much to agree on at the conference, this was not the case when the discussion turned to the midscale segment where a heated debate sparked long discussions among the conference delegates. While some repeatedly mentioned their dismay with the overabundance of midscale properties and the need for something different, there were also those who argued that there remain substantial opportunities for additional midscale hotels, as this is the segment, which best matches the typical Scandinavian traveler. This was a hot topic on the executive panel, where Pirjo Ojanperä, Partner in CapMan, stated that "the midmarket segment is too dominating, and that we need more creativity in our supply, here in the Nordics." Frank Fisker, CEO of Scandic, disagreed, insisted that the supply is not dull, and that the market is very demand driven. According to Fiskers, if there are many midscale properties, it is simply because this is the preferred type of hotel in the market. The post-conference survey results seem to provide much support for Fiskers. For the survey question following up on last year's survey, asking 'Why was the midscale segment, across all stakeholder groups, deemed the most ripe for investment at last year's conference?', 38 percent ticked 'The Nordic traveler is more prone to midscale products', and 25 percent chose 'Midscale is the best business model here.' Another 19 percent, however, in no way agreed. Open comments highlighted the need for budget, upscale and lifestyle properties, while one individual pleaded for "No more midscale, please!"

Regardless of entry barriers and disagreement over the infamous midscale segment, there is no doubt about the interest in the Nordics. The primary reasons for the positivity amongst the conference delegates were identified as:

  • Good, stable markets and political systems (unlike e.g. the Eastern European markets these years)
  • Strong and growing economies
  • Capital available and financing possible
  • Solid and growing demand

Considering the upward trend of the market, it is no surprise that the industry players want a piece of the pie. The Nordic hotel market is blooming, showing strong growth rates on both occupancy and ADR across most cities and regions. A noteworthy exception, however, is Stavanger, where hotels are suffering, due to the strong reliance on companies involved in offshore oil drilling. In fact, the RevPAR in Stavanger is down 28.2 percent in 2015ytd (through September), compared to the same period in 2014. This negatively affects the Norwegian country average, but otherwise the Scandinavian hotel market is certainly strong and growing.

The general sense of optimism is not one of passive contentment, but one that inspires intent and action. When asked about the likelihood that they would open a new hotel in the Nordics within the coming five years, over 50 percent of the delegates answered that they were 'very likely' to do so, and an additional 20 percent ticked 'likely' to do so. Thus, it seems the Nordic countries can expect a noteworthy growth in capacity, but whether that will mean an increased presence of international players, is still not certain.

As different as the Nordic hotel region is, the survey also revealed that for the players there are still many important similarities with the hotel markets across the rest of the world. For example, when asked to identify the biggest impacts on the Nordic hotel industry in the coming five years, the delegates most frequently answered the sharing economy, followed by increased inbound travel from Asia, and then changing distribution channels. These reflect the concerns of the global hotel industry as a whole, where all the major players dedicate significant resources to address these exact areas.

In conclusion, the Nordic hotel market seems, for the most part, to be on a continual upward trend in the eyes of local and international experts. While certain local and regional difficulties exist, these are not viewed as deterrents. Instead, they should provide necessary impetus for established and new players to challenge the status quo and provide customers as well as investors with interesting alternative hotels and investment opportunities. As we allude to in our title, the more things stay the same in the Nordic hotel market, the more things (will?) change.

Written by Sarah Sonne Larsen, Senior Hotel & Spa Consultant, Nordic Hotel Consulting, [email protected] and Demian Hodari, Associate Professor of Strategic Management, Ecole hôtelière Lausane. [email protected]

Demian Hodari

Demian Hodari is an Assistant Professor of Strategic Management at the Ecole hôtelière de Lausanne. His research focuses on the evolving roles of hotel owners, asset managers and general managers. He regularly presents his research at academic conferences, provides executive education and is a frequent moderator and/or chairperson for industry events.

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Sarah Sonne Larsen

Sarah Sonne Larsen is a Hotel Consultant & Senior Business Analyst with Nordic Hotel Consulting (NHC). Sarah is based in the Copenhagen office and has been with the company since 2007. Within NHC, she is specialised in consulting on new hotel projects including everything from feasibility studies, and operator search to GM recruitment.

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