REPORT FROM SWEDEN—Stockholm is the most dynamic hotel-sector city in the Nordic region, but overall the Swedish hotel sector offers little exposure across the entire property spectrum, according to sources.
The sector is quiet, although there has been one new player to emerge as of late.
Fastighets AB Balder, a real estate company, in April bought a portfolio of 14 hotels (2,430 keys) from Swedish company Pandox for 2.2 billion Swedish krona ($335 million). Last year, it purchased the new-build Stockholm Skeppshandeln 1 building, which will contain a hotel from Profil Hotels. The company also purchased the Lindholmen property in Gothenburg, which contains hotels SAS Radisson and Scandic Opalen. Earlier this year, in the Swedish city of Lund, it acquired a fully-let hotel building to be managed under Radisson’s Park Inn brand.
More than 40% of the Pandox portfolio is in the Stockholm area. Scandic Hotels is the largest tenant of the portfolio (65%), but Nordic Choice (20%) and Winn Hotel Group (12%) are also present, mostly with leases that have average terms of seven years, according to a news release from Balder.
Albin Sandberg, equity analyst in the Stockholm office of Handelsbanken Capital Markets, said Balder was the only company he had heard of in Sweden that had been outspoken in its interest in the hotel sector.
“Others here consider hotels to be too much of a niche. Balder’s interest comes at a time when competition is less fierce, with a few interested pension funds but little else,” Sandberg said, adding that costs remain high in the country and region, and demand for travel and property in Sweden remain mainly domestic.
“Norwegian operators remain quite active in Sweden’s broader commercial real estate market, with office and retail being of most importance,” Sandberg said.
He said Sweden remains attractive, with excellent liquidity and legal processes.
Quietly confident
That Sweden and other Scandinavian and Nordic countries go about things with quiet confidence might smack of cliché, but sources said that remains true.
Anders Nissen, CEO of Pandox, said international business seems not to be impressed with Nordic brands but that, in his opinion, they remain efficient and among the hotel industry’s best operators.
“Though lately there has been little change, we are now seeing more property owners looking at (Sweden) again. There is no clear trend, but I believe in a couple of years domestic hotels will see performance improvement, and there will be more diverse ownership,” Nissen said.
“That is the driver for companies such as Balder,” Nissen said, adding Pandox is actively looking at adding to its portfolio of 105 properties.
Stockholm soaring
Stockholm is by far the most dynamic city in the Nordics, and it will continue to be that way, said sources, who claimed to have seen a healthy number of hotels proposed in the capital.
Tora Holm, business development manager for Stockholm Business Region Development, said that Stockholm’s success stems from it having Scandinavia’s largest market, largest incidence of international company headquarters, and, according to the Stockholm Chamber of Commerce, by 2030 being among Europe’s fastest-growing cities.
“Mostly 4-star business hotels dominated Stockholm, but today there is a 50/50 leisure-business mix. We lack the absolutely luxurious hotels and also the budget ones, but a new segment emerging now is what we term ‘city-compact’ hotels, small rooms heavy on style and IT,” Holm said.
Two upcoming examples are new domestic brands HTL (a Scandic flag) and Motel L. Both open their first properties in Stockholm in May.
“We expect a 5% increase in hotel keys in 2014, mostly in 4-star properties of 120 rooms or so, boutique properties and city-compact hotels,” Holm said.
Analysts underline Stockholm’s dominance.
“Stockholm is in a league of its own in Scandinavia. The rest of Sweden is waking up but slowly. Uppsala and Gothenburg show good signs, too, but Malmö (Sweden’s third-largest city) had astonishing growth between 2000 and 2007 but was helped by nearby Copenhagen (Denmark). With Copenhagen suffering now, so is it,” Sandberg said.
Stockholm’s persistent problem remains the limited presence of office space, with landlords not interested in seeking hotel developers.
“The city is promoting housing the most, but it does realize that hotels make cities more vibrant,” Holm said.
One building Stockholm-watchers are eyeing is the Swedbank headquarters, with the bank moving its main address to elsewhere in the capital. Pension fund AMF is planning a large hotel for the space that could comprise one to three different brands, according to reports.