CBRE Nordics shares the brand-new research report series focused on the Nordic hotel market. CBREs Jussi Niemistö, Head of Research, Nordics, and Erik Myklebust, Head of Hotels, Nordics, share their thoughts and the key reasons why the Nordic hotel market remains interesting and active going forward, despite the current uncertainties in the real estate market.
Our dedicated hotel specialists in the Nordics work closely with the Nordics research team to provide our clients with relevant and timely hotel market intelligence. This Snapshot renews our efforts in publishing research to a wider audience. CBRE plans to distribute the Nordics Hotel market snapshot two-to-three times a year. The first publication of this brand-new research series covers the period from January through April 2023 with relevant comparisons to the same period in 2022 and 2019.
The Nordic hotel market is seeing international interest
Several of the world’s largest hotel brands are already present in the Nordics, but their footprint is much smaller than they would prefer, and their hotel networks are currently too small to be competitive against the local hotel chains. This situation is changing, and several more internationally branded hotels will enter the market soon. However, there continues to be a mismatch between the growth strategy of the international brands and the preference of the region’s banks and developers regarding different operating structures.
Hotel Management Agreements are rare in the Nordics, while long, hybrid leases are the norm. This suits the native, pan-regional, integrated hotel chains well, and they adeptly keep international behemoths at bay. There is plenty of cross-border hotel transaction and investment activity, but most of it is still intra-regional to the Nordics. Few investors from outside the region develop or own hotel assets here, but this is changing too.
While transaction volumes will increase in 2023, we expect many small deals driven by refinancing needs as well as fatigue among owner-operators. CBRE expects varied hotel trading across the region in 2023, with lower guest volumes but average rates somewhat higher compared to 2019. Norway is an outlier among the countries, with large RevPAR* increases in all major cities, and regional cities perform better than capitals.
The latest insights from the Nordic hotel investment market
The Nordic investment market slowed down in the first half of 2023 as rising interest rates and a shift in the pricing environment limited the number of transactions. Investors have remained cautious in allocating new capital under current market conditions, while the yield expansion and repricing of real estate have continued.
While operational performance is relatively strong in most hospitality segments, the activity in the Nordic hotel investment market remains low with a total investment volume in the first quarter at €191 million, up by 105% year-over-year. An increasingly challenging debt environment has increased pressure on investor financing costs. Traditional lenders remain more selective towards hotel property financing, while alternative debt financing is available, but at a higher cost. We see increased interest amongst buyers – both domestic and foreign – for the right type of assets.
Supply of investable products remains limited, however, there seems to be a slight increase in assets coming to market going forward. Buyers and vendors still disagree over pricing, however with vendor expectations turning slightly more realistic. Despite macroeconomic headwinds, we expect hotel investment activity in the capital markets to pick up going into the second half of 2023 and speculate that refinancing gaps might lead to sell-offs from leveraged investors.
*Revenue per available room (RevPAR) is a metric used in the hospitality industry to measure hotel performance.