Nordic hotel companies have had a growth spurt in recent years; none more so than Pandox, whose portfolio is currently worth $4 billion. And it's built itself up by focusing almost exclusively on the leased model.
With the global geo-political environment putting stress on markets close to home, Pandox used its annual Hotel Market Day, held at the end of November in Stockholm, to underline the growing importance of China to the Nordic market, both as a source of consumers and investments.
"We think we have an interesting situation where the global economy has proven resilient. However, U.S. elections, Brexit—who was thinking about that before the summer? Now we have the French elections, possible security issues," Pandox CEO Anders Nissen told attendees. “In this beautiful world, we belong to the largest service industry and the fastest-growing industry in the world, which has shown growth for the last six decades. The hotel business follows the global business environment. Long term, this looks good. Short term, Pandox’s key markets look more challenging.”
He added that “the leased model will be stronger and stronger in Europe.”
One of the brands which the company works with reaffirmed its enthusiasm for the region, with Nick Smart, VP of development, North & West Europe, Hilton Worldwide, stating that: “In addition to Hilton Reykjavik Nordica, our new Canopy by Hilton hotel and two upcoming Curio properties in Reykjavik, we already enjoy a presence in Denmark, Finland and Sweden. Lease agreements are much more prevalent in the Nordic markets and Northern European markets.
“Hilton has enjoyed success in recent times in Germany and the Benelux by partnering with organizations that are able to offer landlords a lease while franchising with a Hilton brand. We would be keen to pursue this strategy with Nordic partners.”
Channeling China
Looking further afield, Pandox Chairman Christian Ringnes told attendees that China was “not only a country, but also a movement in the world. Sell what China wants, not what China makes. The current need is for hotel rooms in Europe. Maybe they will start to make hotels in the rest of the world, but that won’t be for many years.”
That ambitions within China are so far domestic was confirmed by Elton Sun, EVP, CEO upscale brand unit, Huazhu, who told the gathering: “In the short term, our strategy is focused on China. So we want to create that business. Within the next five years we are focused on the China market and then maybe we will look internationally.”
China may not have it all its own way. Frédéric Cho, founder of Frédéric Cho Advisory, described the election of Donald Trump in the U.S. as “a political blizzard that may or may not have an impact on where China is heading.”
Cho had no doubt, however, that “China is still governed by The Communist Party—it may not look like that, but it’s true. The people are given some economic freedom, but in the political arena, there is no competition.”
The move from a planned to a market economy is creating investors in the hotel sector overseas. “The new China is consumption. Maybe some people have taken the opportunity to get some money out of a country which is a bit shaky,” Cho said.
Andreas Scriven, international managing director & head of consultancy, Christie & Co, described the evolution of Asian outbound investment, particularly in the UK, where “there are deals being done in tertiary locations that five years ago investors would never have looked at. Up until five years ago, when we talked about China deal in the UK it was London. Now their greater knowledge and understanding means that there are looking at smaller deals.”
He added: “I would like more stock and supply from Scandinavia, there would be interest.”
“The deals are being done to access European customers and bring Chinese customers in, they are are being done for reasons of vertical integration, leveraging core competencies, improving knowledge of management teams and diversifying risk—currency risk, type or property, geographies.
“They try to buy off-market, and will pay extra for the privilege, but they are more motivated by commercial decisions than some of the money that we have seen coming in from the Middle East,” Scriven said.
When asked whether the European markets, so-recently dominated by the U.S. private equity groups, particularly in the UK, Jileen Loo, head of Asia desk, International Capital Markets, CBRE Hotels EMEA, said that the motivation of investors varied, with some family businesses looking at investments from a multi-generational standpoint, but China’s private equity groups taking a similar stance to their U.S. counterparts.
Scriven pointed to data which reported that, for the year-to-date October, Europe’s hotel sector had seen €6.4 billion of investment, 10 percent of which had been Asian capital. He commented on the EU Referendum being a motivating factor, adding: “There were two major reactions to Brexit. U.S. private equity groups looked like they’d seen a ghost, like they’d seen death, but the reaction from Asian investors was different, they saw it as an opportunity.”
Since the EU Referendum, he noted that “Germany surpassed the UK as the most liquid market,” with the security of a lease-dominated market a part of that flight.
This year, Scriven said, had seen a shift from Asian investors to “more strategic investments, such as those at HNA Group, a trend we expect to continue as investments become more sophisticated."
Scriven looked at the opportunity, with 68 million current outbound travelers from the U.S., against 52 million from China. By 2020, this was expected to rise to 100 million from the U.S. and 134 million from China, a country where, currently, only 4 percent of the population holds passports, against 39 percent in the U.S.
Key to success in Europe was shown to be the ease of visa applications, with Italy attracting the largest number of visitors, at 2.3 million. Scriven said: “It’s become the Italians that are highly efficient at issuing visas.” Italy has a 36-hour turnaround for visas compared to between 10 and 15 days in the UK.
Demand is not only for real estate, but for management expertise. Kaye Chon, dean and professor, school of hotel and tourism management, The Hong Kong Polytechnic University, said: “There are 2,000 institutions offering hospitality training, but it is still not enough to meet demand.”
On the ground, however, Chon said: “The center of tourism has moved to Asia, in terms of quality and quantity. Some of the brands in Asia—Shangri-La, Mandarin Oriental—have created a new model for service”.
The demands of the rising ranks of independent travelers were identified as a good shower and good, free Wi-Fi—demands hotels are already well familiar with.