Increase in hotel supply threatens Stockholm performance

City centre and the port of Helsingborg in Sweden. Photo credit: Leonid Andronov//Getty Images (Scandic has signed a long-term lease agreement with Midroc for a hotel in the new development in the Helsingborg harbour in Sweden.)

A decade's worth of new hotel supply in Stockholm is cause for concern for hotel owners and operators. According to Christie & Co, room supply in the Swedish capital increased by 37 percent in the decade from 2007, topping out at 19,640 rooms. 

Still, Sweden's hospitality industry on a relative basis is performing positively.

Scandic, for instance, has signed a long-term lease agreement with Midroc for a hotel in the new development in the Helsingborg harbour. The deal was the latest in a series which have brought the regions in Sweden to the fore in response to the oversupply in Stockholm.

Helsingborg in the south of Sweden is the eighth-largest city in Sweden and, at 20 minutes to Helsingør (Denmark), 30 minutes to Malmö, 1 hour to Copenhagen and 1.5 hours to Gothenburg, a growing hub for both goods and labour. 

The new Scandic hotel is part of the H+ project where the old industrial harbour will be converted into a development with housing, offices and trade. At the pier where the hotel will be sited, 32,000 square metres of commercial space will be developed. The property is expected to open in 2021.

The announcement was made prior to Scandic’s first-quarter results, at which it cautioned that, while underlying growth was positive in Sweden, in Stockholm, revenue per available room continued to decrease due to increased capacity.

Even Frydenberg, the company’s president and CEO, said: “For the second quarter of the year… RevPAR in Stockholm is expected to remain under some pressure.”

Others are feeling the pinch, too. Fellow Nordic group Pandox was also cautious over the Swedish capital in its first-quarter results, commenting that in Sweden the number of hotel rooms had increased by more than 3 percent over the past 12 months, which has reduced RevPAR growth, falling by 6 percent in Stockholm due to a combination of new capacity and a negative Easter effect. 

As at Scandic, the company has diversified its holdings in Sweden, not focusing on the capital. CEO Anders Nissen was confident that the regions brought balance to the portfolio, telling Hotel Management: “Stockholm is as London is in the UK: it is a different market to the regions. People say that Stockholm and London are better than the regions, but it is not true, the regions are more stable in the long term. 

“If you look at Stockholm now, more supply is coming in and if you look at the long-term trend, then you can pay a lot and, yes, you might get a good return, but it is high risk. The regions are stable and give good returns.” 

Helsingborg and the Nordic regions are currently vying to become a global hub. As previously reported in Hotel Management, Helsinki has taken advantage of its position on the globe to act as a link to China—flying from Scandinavia to Asia saves one to two hours because of the curve of the earth. 

Also looking east is Turkey, were Istanbul New Airport will replace Ataturk Airport when it opens in October this year. The capacity of INA will be expanded to cater to up to 200 million people once all four phases are completed and will have a total of six runways and three terminals, with plans to be the region’s leading hub.

As the north and south of Europe look to up their profiles, in the centre Paris and Frankfurt are both setting out their stalls to take over from London once the UK leaves the European Union.

Capitals, with their greater potential for volatility, need a tempering influence in any estate. Solid but stable regions, with the spice of a hub, are growing in importance.

Katherine Doggrell is an editor at Hotel Analyst, the U.K.-based news analysis service for hotel investors.