Supply gap in Iceland gives Airbnb room to grow

Photo of Reykjavik courtesy iStock / Boyloso.

A new study from Christie & Co. suggests that demand for hotels is likely to outpace supply in Europe.  

The report identified a number of development hot spots in the region, some of which may see alternative providers such as Airbnb filling gaps in supply.

“The findings of the report show quite clearly that Europe as a destination remains extremely popular and there is huge opportunity for international brands to grow in the region,” Anna Eck and Marine Duchesne from the hotels consultancy team at Christie & Co. and the report’s authors, said. “Markets such as Iceland, Poland, Denmark, Portugal and Sweden provide options for hotel chains whilst Ireland, Spain, Portugal, Poland and Sweden would be ideal for opportunistic investors willing to take more risk. These markets are all expected to achieve strong RevPAR increases in the coming years as well as demand growth in excess of supply.”

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Despite a range of disruptions to European tourism in recent years, the latest World Tourism Organization barometer reported that visitation grew 1.5 percent in 2016 and was expected to grow another 2 percent in 2017, attracting half of global arrivals.

Iceland is Hot

Iceland has seen the highest hotel demand growth—about 12 percent annually on average—over the past decade, outpacing supply, which grew by only approximately 5 percent per year. A number of developments are currently underway in Iceland, including an Edition for Reykjavík, due to open in 2018. Airbnb has also gained ground in the country, which put in a cap of 90 days per year for residents to rent out their properties.

Despite this, the city’s Housing Financing Fund reported last week that at least 1,400 Airbnb apartments were not registered correctly.

Commenting at an event to launch the publication, Cody Bradshaw, managing director, head of European hotels for Starwood Capital Group, confirmed that some of the demand was likely to be met by Airbnb and its competitors. Bradshaw added that he expected to see an increase in consolidation in the sector in Europe and a rise in investor interest on the periphery, as demand pushed up cost and put yields under pressure.

Demand for Iceland has been driven in part by the country’s authorities pushing it as a transport hub, with budget airlines such as Wow Air using it as a stop-off point between Europe and the U.S. and encouraging travelers to take a few days between flights.

Internal Demand

With a number of Europe’s airports, including Heathrow, Gatwick, Munich and Copenhagen all operating at capacity, there were concerns that over-stretched infrastructure would hit demand. Bradshaw felt that there was always more capacity to be found through more efficient use of airports and also pointed to the huge number of infrastructure projects in place across Europe, encouraging other methods of travel, such as by train.

Although the Nordic region in particularly has looked promote itself as a hub for travelers from Asia, the majority of the demand for Europe has come from within Europe. The study reported that demand in Sweden, Finland, Norway, Germany, Poland, France and the UK was mainly domestic, whilst internationally-renowned holiday destination, such as internationally renowned holiday destinations such as Spain, Portugal, Austria, Greece and Croatia were dominated by international demand.

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