The Nordic hotel investment market has typically been characterized by strong local currency and domestic or pan-Nordic capital deals, limiting competition and making it harder for overseas investors to gain access.
But that’s all starting to change.
While established domestic investors such as Pandox, Balder or NREP have historically dominated the market, for the first time, a broader range of European players from family offices to private equity funds and institutional core plus investors are checking-in to the Nordic hotel market.
High living standards, social equality, and political stability make the Nordics attractive for businesses and investors. But recently, weaker currencies have added another pull factor, says Stefan Giesemann, JLL’s Managing Director for Hotels & Hospitality Capital Markets, DACH, Central, Northern and Eastern Europe.
“Local currencies such as the Swedish krona have weakened in comparison to both the British pound and the euro, opening the market to more international capital,” he says.
Cross-border investors seeking to diversify portfolios and generate liquidity, particularly those from the UK and U.S., are also taking advantage of the positive impact of currency forwards when investing in Swedish or Danish hotels.
“By hedging foreign exchange risk and managing exposure they’re protecting themselves against future potential currency fluctuations,” adds Giesemann.
High demand for accommodation creates investor opportunity
Shifting tourism patterns are seeing Northern Europe gain market share over traditional destinations. Favourable exchange rates, combined with the burgeoning Nordic food scene, stunning natural scenery and increased flight options, are drawing more travellers to explore what the region has to offer.
The trend for so-called “cool-cations” – visitors choosing more temperate climates – has also led to notable increases in international overnight stays, according to a report from the European Travel Commission, which highlights year-to-date increases for Denmark (+38%), Norway (+18%) and Sweden (+9%), relative to 2019.
As a result, demand for accommodation is on the rise.
“When compared to other European cities, we’re seeing significantly higher demand-to-supply ratios,” says Giesemann. “This shortage of available rooms represents opportunities for institutional investors and listed companies looking to restructure portfolios, reduce debt, free up cash and decrease risk. As a result, we’re seeing hotels activity and deals in the region begin to rise.”
The Nordic hospitality sector has benefitted from geopolitical shifts in favor of countries perceived to be highly secure, a reputation for quality and service, and strong focus on sustainability.
“Denmark in particular is increasingly popular with investors as an easy place to do business thanks to low bureaucracy, efficient government procedures and a supportive regulatory framework,” says Giesemann.
What’s more, as the commercial office market continues to give investors pause for thought, office-to-hotel conversions are becoming an attractive option for those seeking to rebalance their real estate portfolios.
Giesemann points to the fact that some established hotel operators have already snapped up vacant office blocks and are repurposing as hotels in sought after locations.
Corporate travel boosts hotel occupancy
It’s not just leisure travellers that are boosting demand for hotel beds.
“The Nordic region had a different approach to the pandemic and saw a quicker hospitality rebound,” says Giesemann. “We’ve seen a corresponding resurgence of business travel fuelled by rising numbers of exhibitions and conferences.”
Some hotel operators have been quick to capitalize, attracting corporate guests by incorporating coworking spaces into their offerings.
As markets continue to face a degree of uncertainty, investors seeking homes for capital are still benefiting from discounted hotel trading rates when compared to the sector’s pre-pandemic levels.
“All the signs point to continued interest, with strong operational performance paired with the outlook of lower funding costs expected to selectively boost the total returns outlook in Nordic hotels,” says Giesemann.
