International hotel investors seek entry to Scandinavia on their terms

Nordic cities, such as Stockholm, have piqued the interest of international hotel-focused investors. Credit: RudyBalasko//Getty

It can be frightfully cold in the Nordic countries, but the market there for hotels is hot. That's according to a new study from Christie & Co, which focuses on international operators and investors seeking to penetrate the popular region.

While deterrents remain, such as the favored lease structure, off-putting to many international investors, there is a growing market for management contracts, which would allow for a more equitable share of risk between parties.

Christie & Co reported that the region, including Denmark, Sweden, Finland and Norway, had a sizeable pipeline of more than 12,000 proposed new rooms, including “long-desired international lifestyle brands,” such as citizenM and Moxy, which are expected to induce new demand. The company pointed to “clear gaps” in the internationally branded full- and limited-service sectors, which could take advantage of the increase in visitors.


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The capitals of all four countries have seen revenue-per-available-room increases around 25 percent over the past five years, while arrivals grew by over 3 percent per annum, overnight stays in Oslo, Stockholm and Copenhagen increased by almost 5 percent annually.

Local Dominance

Despite this gradual internationalization of the region, Scandinavia is still dominated by local operators, and Scandic and Nordic Choice are the largest operators.

Giving international investors pause is the preference for leases. Recent developments have, however, seen a shift to a tripartite structure, with the two Moxy hotels currently in the pipeline for Copenhagen and Oslo opening with a local operator signing a franchise agreement with Marriott and a variable lease with the property owner, Vastint.

“It’s important to stress that there need to be more third-party players that would take that role," said Anna Eck, senior consultant for Christie & Co. "Banks tend to lend on leases; there are enough local brands that will take leases. But the opportunity is there.”

Kimmo Virtanen, director of Scandinavia, Russia & the Baltic States for Christie & Co, added: “There is nothing preventing negotiating management agreements, it’s just that, at the moment, the investor profile is low risk. There has been a lot of competition for development, which has opened the avenue for forward funding and hybrid agreements.

“It’s how you negotiate the management contracts. There are ways to make them more owner friendly, so that the brand only gets paid after a certain level, sharing the risk. It’s always a question of sharing the risk and it’s usually the investor who takes the risk on. But the management company can take the risk with the staff, which would allow the pension funds in. There are a lot of ways to slice and dice it.”

Denmark's largest hotel, the 812-room AC Hotel Bella Sky Copenhagen, was sold to Norwegian investor Wenaasgruppen earlier this month. 

Heavier Trading and Development

The region has seen the transactions market warming up, most recently with the sale of the AC Hotel Bella Sky Copenhagen, the largest hotel in Denmark, to Norwegian investor Wenaasgruppen. “There’s activity here all the time and there is a lot more to come," Virtanen said. "The local investors have been shaking out their portfolios and international investors are looking to developments to get into the market if there is nothing to buy. Suddenly the real estate companies have realized that there are good returns to be made.

"At the moment, there is an imbalance, the residential markets are heating up. Some of the investments are with closed funds that are now coming to an end; others are investors looking for balance by adding a hotel component. There is some churning going on and I think that will increase as RevPAR increases. It is also the case that some are only just finding Scandinavia on the map, [and saying] 'Look! There’s some dirt on the map in the north!'”

Helping to fuel growth in the Nordics is the drive by airports in the region to act as hubs for travelers to and from Asia. “When you fly from Scandinavia to Asia you save one to two hours because of the curve of the earth—and Finnair also has permission to fly over Russia without being shot down," Virtanen said. "Chinese visitors in Helsinki now outnumber the British.”

This could, in turn, mean a chance for China’s homegrown hotel brands, with Virtanen adding: “There are definitely more opportunities to market brands from the source markets.”

The global operators would be advised to consider their risk-sharing options sooner, rather than later. 

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