Why global operators are eyeing Copenhagen

Copenhagen Marriott

Swedish real estate investor Balder has spent $116 million buying four hotels in Copenhagen, Denmark, close to the city’s central station. Balder will sign a long-term lease agreement with Ligula Hospitality Group to operate all four hotels. The deal backs up a report from property broker Sadolin & Albæk that highlighted “exceptionally strong demand” for real estate in the city, with desire for representation in the lease-driven market fueling potential for management contracts. 

Wonderful, Wonderful Copenhagen

Copenhagen has seen growth in the hotel sector in recent years, aided by an increase in foreign visitors. Peter Winther, managing partner & CEO, Sadolin & Albæk, told HOTEL MANAGEMENT that occupancy this year was up at around 85 percent “so the city needs more capacity, or 250 days of the year there is no room.” The city is seeing a lot of interest from the global operators, he added. “Marriott International is looking, AccorHotels is looking.” 
 
The country’s hotel market is dominated by leases, delivering the returns sought by institutional investors, but Winther commented that the growth and popularity of the sector is strong enough that he expected to see management contracts “soon, but not within the next six months.” 
 
Sadolin & Albæk’s report found that foreign night growth in the city was 48.2 percent in 2010 to 2015, while this period saw 44.7 percent domestic night growth. Foreign nights accounted for approximately 65 percent of total nights in 2015, and domestic nights accounted for the residual 35 percent.
 
The total number nights exceeded the 6.9 million mark in 2015, up almost 10 percent over the previous year. Since 2010, night growth has been 46 percent, representing an annual increase of some 9 percent. This uptrend was set to continue, with the number of nights projected to reach some 7.5 million in 2016.
 
The study said that in greater Copenhagen, recent years had seen a decline in nights from the countries neighbouring Denmark. “This may in part be attributable to air route expansions as well as a general cut in airline fares, making it both easier and less costly for northern Europeans to fly to even relatively distant destinations.
 
“U.S. and UK guests, on the other hand, accounted for substantial night growth from 2014 to 2015. In this context too, an increase in the number of airline destinations and lower airline fares play a role as it has become both easier and less costly for U.S. and UK citizens to visit Denmark.”
 
The primary growth driver was a boom in tourism, including tourism related to meetings, incentives, conferences and exhibitions. Secondary demand drivers such as economic growth, falling unemployment, low interest rates and low oil prices further supported expectations of continued growth.
 
Before the financial crisis, several investors and developers launched a number of hotel developments, causing the supply of hotel rooms to increase in 2010 and 2011, when both occupancy rates and average daily room rates were relatively low in the aftermath of the crisis. Since then, the group said, few new hotels have opened.

Looking Ahead

The city is due to increase its hotel capacity to close to 24,000 rooms in 2021 from 18,000 rooms in 2017 according to the Copenhagen Convention Bureau. Upcoming hotels include a 380-room luxury property under the Nordic Choice Hotels brand, due in 2020 with budget brand Cabinn due to add 1,250 rooms, with a site opening in 2019.
 
The increase in supply is likely to hit performance growth, with Winther commenting that he expected to see a drop in “2019, ’20, ’21, before the capacity is absorbed again. The global brands bring 30 percent of their business from overseas, which makes up the shortfall.” While the impact of Brexit on the strength of the pound was also likely to mean a dropoff in British visitors, Winther said that he expected visitors from other countries to compensate.  
 
With VisitDenmark projecting 1.5 percent to 4 percent annual growth in overall tourism in Denmark between 2016 and 2019, demand looks set to catch up fast.  

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

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