With a reputation for a strong focus on sustainability and transactional transparency, the Nordics, EMEA’s third largest property market, has been attracting ever-more real estate investors in recent years. The region’s hospitality sector has in turn been buoyed by geopolitical shifts in favour of countries perceived to be highly secure, according to Deloitte research, while a reputation for quality and service, rising numbers of direct flights and a supply of modern and sustainable stock complete the picture. However, the Nordic market is heterogeneous, with Stockholm and Copenhagen stealing a march on Helsinki and Oslo in recent years, as noted by DWS’s latest Europe Real Estate Strategic Outlook. The latter cities are likely to be characterised over the next year by ‘a slower pick up in liquidity alongside less robust economic drivers’, the report notes.
Digital hospitality brand Numa Group is one firm betting on Copenhagen’s robust outlook, after announcing its expansion into Denmark in recent weeks. The firm is launching with 36 newly built units in Copenhagen's Nørrebro district which are almost complete. The first Numa property in Denmark is being developed in partnership with Invesco Real Estate and is targeting DGNB Gold, with Numa managing the property under a green lease.
Nordic appeal
While Denmark represents Numa’s eleventh market, the group is already active in Oslo, after opening two hotels there in the first half of 2023, according to Fredrik Berlin, Numa Group's director, Nordic expansion. “The Nordics have a lot of the characteristics that suit our product,” he says. “We see significant demand for long-term, mid-term and short stays as well. We are mostly looking at the capital cities in the region, giving a slight priority to Copenhagen and Stockholm.
“In Denmark, we plan to establish a portfolio of several hundred units and are already looking for further hotel and apartment properties in central locations. In Stockholm, there is a somewhat regulated rental market for apartments, so there is a significant demand for hotel rooms. We believe we can bridge that gap with Numa properties.” He adds: ‘We don’t have anything in Stockholm yet but the hunt is on – it’s my job to find our first Swedish hotel and it is very much a priority.”
Numa’s guests – who are typically profiled as Millennials and Gen Z – are predominantly leisure guests, Berlin adds. “We are targeting city centre properties, particularly in Copenhagen and Oslo, while in Stockholm we would start in the centre and then also look at specific suburbs with the right characteristics,” he says.
Looking at the competition and firms expanding into the region as a whole, Berlin notes: “In terms of capital markets, there has always been a huge share of international capital looking at the Nordics. Ranging from German institutional investors to Anglo Saxon private equity funds, there are a range of core and opportunistic investors in the region. Like everywhere, transaction volumes have dipped in the past 18 months, but there is still demand from international investors seeking product.”
Local names
In terms of hotel operators, there are several Nordic names in the market, led by Scandic, which has over 225 hotels, of which 90 alone are in Norway. Other major operators include Strawberry Group, formerly known as Nordic Choice. with over 200 hotels in 100 destinations in the region. Rezidor Radisson Blue and Park Inn by Radisson, Best Western, Sokos, Elite Hotels, First Hotels and Thon Hotels all have a significant presence.
Nordic hospitality investors, meanwhile, include names such as Sweden’s Pandox, which owns around 160 hotels with approximately 35,800 rooms in 15 countries. Another is real estate private equity firm Slättö, which has an active and growing hotels strategy. The firm recently acquired a second hotel in Finland, picking up an aparthotel project in downtown Helsinki from Catella Real Estate. Currently an office, the asset will be converted into an aparthotel with 99 keys in partnership with tech-led operator Bob W. Says Erik Möller, head of hotels at Slättö: “The European and Nordic hotel markets are showing a strong performance, as travelling for short and long periods of time is increasing. There are significant value creation opportunities in apartment-hotel and long-stay properties that have high design standards and technology-driven operations.”
The property will be refurbished and leased to Bob W, while maintaining Lidl as a ground-floor tenant. The 99-room hotel will feature a mix of mini studios and one-bedroom units, each equipped with a kitchenette. Conversion plans include renewing almost all HVAC systems for improved energy efficiency, replacing or repairing windows, roof and parking decks, and solar energy installation with the goal of achieving LEED Gold certification. Bob W operates design-led, sustainability-focused properties in 16 cities across Europe, with a climate neutral proposition.
Sustainability-led deals are a long-standing hallmark of the Nordic market. Legislators in the region, which pioneered many current green building techniques due to extremely cold temperatures, continue to back ESG innovation in line with EU taxonomy requirements. Strawberry Group, controlled by entrepreneur Petter Stordalen, inked a green financing agreement with Aareal Bank last year for its Villa Copenhagen Hotel in the Danish capital. The green loan, to the tune of DKK 769 million (€103 million), complements the highly sustainable property, which includes a rooftop beehive, organic vegetable patch and herb garden.
Refinancing risks
While market watchers welcome the return of deals to the Nordic hospitality market, some transactions are being provoked by recapitalisation challenges. Earlier this year, Sweden’s Host Property inked a partnership with Gelba Fastigheter for the ownership of its hospitality assets, ostensibly to refinance its bond loans. The deal saw Host divest some 51% of shares in the company to Gelba, which became joint owner of a portfolio of eight regional Swedish First Hotels, comprising 967 rooms and a gross lettable area of some 75,000 sq m. The deal came in the wake of a series of recapitalisation shocks in Sweden that are affecting several real estate firms and other high-profile corporations. Swedish commercial real estate companies which were able to borrow heavily when interest rates were low, but on extremely short terms, have been placed under stress after a series of rate hikes throughout 2023, paired with falling portfolio values. While big names caught in the bond-issuance crisis include major residential landlord Heimstaden Bostad, further commercial property landlords may yet be affected, including those in the hospitality space.
Finally, further pressures on Nordic hotel landlords are likely in 2024 due to tepid tourism flows, according to new CBRE research. “This year promises a cooling in hotel guest demand as disposable incomes fall due to cost increases, but a more active hotel investment market following a more stable pricing environment,” says Erik lee Myklebust, CBRE head of hotels, Nordics. “We are cautiously optimistic for hotel investment to recover in 2024 through the continued easing of inflation and the expected rate cuts by the central banks.”