Sweden is among the most strategically well-positioned and fiscally robust economies in the developed world. The Swedish economy has grown significantly in recent years, but during 2008 and 2009 it felt the effects of the global economic downturn. However, during 2010 the Swedish economy showed how resilient it was and experienced significant growth. The Swedish economy is forecast to be among the best performing in Western Europe over the long term, with a trend average-growth forecast of 2.6%, according to Business Monitor International – Sweden Q3 2011.
Gothenburg is the capital of the Västra Götaland County, which is the second largest (in terms of population) of Sweden's counties and is subdivided into 49 municipalities. The Gothenburg region is one of the fastest growing regions of Northern Europe and has experienced positive growth during the last two years—a trend that has continued throughout 2011.
The Gothenburg hotel market experienced continued growth in occupancy and average room rate between 2005 and 2008, which is in line with the economic growth in Sweden during this period. Declines in occupancy, ADR and revenue per available room in 2009 can be attributed to the global economic crisis. Occupancy and ADR in Gothenburg did experience growth in 2010, which was primarily driven by the city centre upscale hotels.
Future supply in Gothenburg over the medium term will add pressure, particularly on ADR. However, we anticipate that in line with the forecast continuing economic growth over the medium to long term, we consider the prospects are very positive for hotel demand in Gothenburg.
Corporate demand generators:
• Trade and shipping play a major role in the city's economic history. Gothenburg port is the largest harbour in Scandinavia.
• Major commercial and industrial companies located in and around Gothenburg City Centre including SKF, Ericsson, AstraZeneca AB. However, at the heart of Gothenburg’s economy is Volvo. During 2010, the 10 largest companies in Gothenburg employed a total of 30,450 people of which 51% are related to Volvo and its associated companies, according to Business Region Gothenburg.
• The Gothenburg region is one of the fastest growing regions of Northern Europe. During 2010, the total number of registered companies/local units located within the Gothenburg region was approximately 94,000. Since 2000, the number of registered companies/local units has increased by 21%.
• The Gothenburg economy experienced positive growth during the last two years. This trend has continued throughout 2011.
• The Gothenburg region has about 65,000 university students, of which 85% are enrolled with the University of Gothenburg.
• The Swedish Exhibition & Congress Centre is located in the centre of Gothenburg. More than a million people come to the SECC every year to visit or participate in some 30 exhibitions and hundreds of large and small conferences and congresses.
Leisure demand generators:
• During the summer months, particularly July, Gothenburg attracts many visitors from all over Sweden and Scandinavia.
• Major tourist attractions in Gothenburg include: Liseberg Amusement Park, Scandinavia’s largest amusement park and the most popular attraction in Sweden, which attracts approximately three million visitors per year; Universeum (Sweden’s national science discovery centre); the Museum of World Culture; Gothenburg Opera House; the Volvo Museum, The Avenue, which contains Gothenburg’s highest concentration of restaurants, bars and clubs.
• Celebrations, festivals and events take place all year round in Gothenburg. However, it is during the summer months when the most popular events take place, including the Hammarkullekarnevalen carnival each May, the Midsommar (Midsummer’s Eve) celebrations, Göteborg Music Festival in June, and international youth handball and football tournaments (Gothia Cup) held each July at the Ullevi Stadium, which also hosts music concerts.
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Visitation
In Sweden during 2010 there were 27.3 million overnight stays in hotels, an increase of 5.3% compared to 2009. Most overnight visitors in Sweden were made by Swedes, which during the last eight years have represented approximately 76% of all overnight stays.
The number of overnight stays in 2010 made by non-domestic visitors was 6.3 million, an increase of approximately 4.5% compared to 2009. Norway, Denmark and Germany are the largest foreign markets contributing 38% (in 2010) of all foreign overnight stays in Sweden. The number of overnight stays in all accommodation in Sweden increased by a further 3% during the first four months of 2011, indicating that the trend of growth and recovery is set to continue over the medium term, according to the Swedish Agency for Economic and Regional Growth (Tillväxtverket).
Exhibit 1: Domestic and International Visitation to Sweden
Source: National Swedish Agency for Economic and Regional
In the Västra Götaland County during 2010 there were 4.5 million overnight stays in hotels, an increase of 4.6% compared to 2009. Visitation to the Västra Götaland County has increased during the last seven years and did not show any slowdown or decrease during the recession in 2009. Overnight stays in the Västra Götaland County represent approximately 16% of total overnight stays to Sweden, second only to Stockholm.
As discussed previously, only around 25% of all visitors to Sweden and Gothenburg are made up of visitors from outside Sweden. Our research shows that the primary source countries for visitation to Sweden and Gothenburg outside domestic visitation come from Norway, Denmark and Germany.
Exhibit 2: Total Overnight Stays in Hotels – Västra Götaland County 2003-2010
Source: National Swedish Agency for Economic and Regional
Countries Norway, Denmark and Germany are Sweden and Gothenburg’s largest source markets for visitors, outside domestic visitors. Together, they contributed approximately 38% of total overseas visitors in 2010.
Hotel performance
The analysis in this market overview is based on information provided by the Statistic Central Bureau of Sweden, which includes a sample of 60 hotels in Gothenburg.
• Occupancy for the defined sample was 64.2% in 2010, compared to 62.7% in 2009, an increase of 1.5 percentage points.
• Average room rate for the defined sample SEK941 (US$136) in 2010, compared to SEK907 (US$132) in 2009, an increase of 3.7%.
• RevPAR for the defined sample was SEK604 (US$88) in 2010 compared to SEK569 (US$83) in 2009, an increase of 6.2%.
• Declines in occupancy, ADR and RevPAR in 2009 (3.4%, 1.3% and 6.4%, respectively) can be attributed to the global economic crisis.
• It is important to point out that the increase in occupancy during 2010 was driven partially by the city centre upscale hotels within the sample. The majority of upscale hotels within the hotel sample did experience an increase in occupancy in line with the general economic recovery being experienced in Sweden post the global economic crisis.
• However, analysis of the performance of the mid-market hotels in the Gothenburg market indicates that these hotels in Gothenburg did experience a decline in occupancy in 2010 partially due the aftermath of the global economic crisis, according to STR Global, parent company to HotelNewsNow.com. However, the situation in the mid-market segment of the market has been compounded by the opening of new hotels, including the 149-room Best Western Mektagonen Hotel.
• This increased level of occupancy among the upscale hotels can be partially attributed to their central locations within the city centre. A large proportion of the mid-market hotels in Gothenburg are away from the city centre. As the level of new hotels increase within the city centre, the mid-market hotels located away from the city centre will continue to feel increasingly more polarised from the hotels in better city centre locations.
• Occupancy and average room rates will come under increased pressure in 2012, 2013 and 2014 as new hotels enter the market. However, once all the new hotels have opened and been absorbed into the market, we expect normal levels of demand growth and ADR growth to resume.
Exhibit 3: Occupancy and Average Room Rate (SEK) Performance for Gothenburg 2002-2010
Source: Statistic Central Bureau of Sweden
New supply
Significant new projects planned in Gothenburg include the following hotels:
• The Clarion Hotel Post will contain 500 guestrooms and will be located within the former post office on Drottningtorget in Gothenburg. The hotel currently is under construction and due to open in January 2012.
• The 266-room Radisson Blu Riverside Hotel Gothenburg will be situated by the Lindholmen Science Park just outside the city centre and directly on the waterfront on the North bank of the Gothia River. The hotel is due to open at the beginning of 2013.
• Gothia Towers are planning to add a third tower to the existing 704 guestrooms. The new tower of 29 stories will house 478 rooms, a panoramic-view restaurant and a conference floor. These new rooms are likely to enter the Gothenburg market during 2014.
Outlook and conclusion
The Swedish economy has grown considerably in recent years but also has felt the effects of the global economic downturn during 2008 and 2009. However, in 2010 the Swedish economy showed how resilient it was, experiencing significant growth. Sweden is forecast to be among the best performing economies in Western Europe over the long term. The country’s productive export sector and healthy local banking system mean the economy is well positioned to recover strongly from the global recession.
Gothenburg has a strong business demand base generated by the many companies in the Gothenburg region, which is underpinned by a very strong leisure demand generated in the summer months by the various sporting, cultural and music-related events and festivals.
Although the local and national economies are showing strong signs of improvement, the Gothenburg hotel market will experience further pressure, particularly on average room rate, as several new hotels and one large extension (Gothia Tower) enter the market over the next three years. However, we anticipate that in line with the forecast continuing economic growth over the medium to long term, we consider the prospects are very positive for hotel demand in Gothenburg.
Justin Lanzkron justin.lanzkron@colliers.com is an Associate Director at Colliers International Hotels in London. Colliers International Hotel provides dedicated hotel and resort property expertise to accelerate the success of our clients around the globe. Colliers International has over 45 people specialising in hotels and resorts based in the UK alone. The team of international experts in London work alongside colleagues around the world to provide a network of hotels teams covering Europe, the Middle East and Africa, the Americas, Asia and Australia Colliers.
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