BERLIN — The Nordic region, which includes Sweden, Norway, Denmark, Finland and Iceland, has long been considered a difficult market for international hotel ownership and management firms to enter, but that is changing.
Strategic, long term-oriented, international capital is expanding as non-Nordics private equity is slowly moving into the lease market in the region.
Eduard Elias, chief operating officer for Europe and United Kingdom at Singapore-based M&L Group, said his firm is receiving many more opportunities in the Nordics.
“There are multiple reasons for this,” he said during a panel at the recent International Hospitality Investment Forum EMEA. He added the Nordic region is “not explored for leisure travel as much as it could be. … For some, now it is too warm in summer in Spain.”
Fredrik Andersson, vice president of investments at Nicosia, Cyprus-based Mohari Hospitality, said the Nordics always had an emphasis on experiential and wellness travel, long before those terms were popular.
“For the Northern lights, for foraging, the region feels like a blank canvas, and it is backed by [its countries always being voted as the] happiest places to live. There also are [the advantages of] equality and ease of business,” he said.
Robin Stenlund, investment director and portfolio manager at Helsinki-based CapMan Real Estate, said domestic hotel owners and operators are seeing a little movement away from the playing field being dominated only by leases, although that model remains the favorite.
“Urban hotels with revenue-based leases give us a very good risk-adjusted return, allowing us to concentrate on the real estate and operators on their business,” he said.
International brand penetration remains very low in the Nordics.
“It is possible to do a hotel management agreement in the region, although that still limits [sellers] on the exit, but it will add to the region,” Stenlund added.
Stefan Giesemann, managing director of hotel capital markets for Europe, Middle East and Africa at JLL, said in the main Nordics cities there's an appetite for hotel management agreements from international brands.
“A lot of institutional investors outside of the Nordics are coming in, from Germany, from France. The currency play is still a barrier, but investors are getting creative to get in,” he said.
Christian Kielgast, partner at Nordic Hotel Consulting, said the recent fall in value of local currencies has helped this development. He added hotel financing in the region is becoming more accretive, and there is more aggression when it comes to securing margins.
“Hand-holding and more education is required. It is still tough for international players to make a move,” Giesemann said. He added he has seen some urgency from international firms to take advantage of first-mover dynamics.
Luxury play
The Nordic countries might not be suited for an explosion of luxury hotels and reports across the region, but there's space for the segment in some of its capital cities.
M&L Group launched its first expansion into the Nordics in July when it acquired the Hotel Maria from Samla Capital. M&L Group then announced a partnership with Hilton to reopen the asset as the 116-room Waldorf Astoria Helsinki.
The Nordics have “been a pretty closed market, so this is where the opportunity is, to bring in high-end luxury. There is space for that, for the international brands that are not there to bring in an influx of new guests,” Elias said.
The opportunity for luxury hotels exists only in a handful of Nordic markets, Mohari Hospitality’s Andersson said.
“There will not be 20 luxury hotels in the market. There is momentum, but this will never be a full-blown luxury market,” he said.
For luxury hotels to be successful throughout Denmark, Finland, Iceland, Norway and Sweden, the region would require international guests, who in turn would require the same standards of luxury they are accustomed to in the U.S., Southeast Asia and the Middle East, Elias said.
“They expect the same quality and service as they get on London or Paris, and they have a choice between London and Paris or Stockholm and Oslo,” he added.
The Nordics region has excellent local hotel brands and operators, Elias said, but “if you have diversity, that will bring more demand. Do not be afraid of diversity.”
The domestic hotel market in the Nordics would raise an eyebrow if it charged average daily rates of €1,500 and more, Andersson said, whereas guests heading to London and Paris might already be paying those rates now.
“You need confidence to create a luxury product [in the Nordics] that you can charge three times as much. It will come, but you need international brands to come in and show that this possible,” he said.