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Plugging the Hotel Shortage Gap in the Nordics - Part 2: Budget & Long-Stay Segments

Following my article on December 14th, 2018, regarding the Nordic hotel markets, we now highlight two hotel sectors which remain significantly under-supplied across all major Nordic cities: Budget and long-stay accommodation.

Hotel apartments make up only a fraction of the current hotel stock across all Nordic markets. Demand for hotel apartments, rather than hotel rooms, consistently outweighs the volume of current stock available. This has led to occupancies within the long-stay segment to be averaging 90% +, which in turn means many of these hotels have regular fill nights where surplus demand goes unmet – and this demand is subsequently absorbed by the availability of ‘regular’ hotel rooms instead.

Hotel apartment operators are seeking to expand their current offering in The Nordics

CBRE Hotels are aware of many national and international hotel apartment operators are therefore actively seeking to expand their current offering in The Nordics as they seek to fill the supply gap. Indeed, CBRE Hotels estimates a current shortfall of some 3,000 units in Stockholm alone.

Attractive investment

The enduring attractiveness of hotel apartments to investors and operators alike is easy to fathom, with the segment targeting long-stay guests and long-term corporate contracts. This guest profile offers security through long-term base business, meaning increased levels of occupancy when compared to the overall hotel market. The asset type also removes the need to provide other, more expensive, guest services within the hotel such as leisure facilities and food & beverage outlets, both of which require a greater intensity of management and increased personnel head-count as well as attracting significantly higher operational expenditure. Therefore, long-stay apartments reduce traditional hotel operational risks.

Many investors also realize the indisputable benefit of having an underlying fallback position often provided by long-stay accommodation; namely that the asset can relatively readily be converted into use as residential apartments if the hotel operations are not meeting the owner’s required returns. These assets are frequently located where residential use can be found within the surrounding area and the underlying value of the hotel property is therefore often underpinned by reference to residential capital rates (per square meter).

The Budget Segment

Turning our attention now to the Budget segment, this is another section of the market that remains undersupplied across the Nordics. Whilst the traditional ‘hostel’ type accommodation is well represented, we are seeing a welcome shift towards innovative, design-led solutions for the economy-minded traveler. The divide between hostels and hotels is being blurred by revolutionary budget sector brands, which are able to offer a selection of room types, from the traditional shared-facility dormitory style to independent rooms and apartments with en-suite facilities, within the same hotel. This allows brands to cater not only for the ‘back-packer’ but also appeals to budget corporate demand.

Innovative space planning

Moreover, the nature of the product with reduced room areas often allows operators to make clever use of otherwise unproductive space. Some operators have even proven that basement/underground areas of buildings with no windows or access to natural light can be converted to hotel use and sold as ‘dark’ bedrooms. Once more, the reduced focus on leisure and F&B within this segment further allows operators to focus on driving top-line revenue growth through pro-active management of room occupancy and rates, which ultimately delivers healthy bottom-line results. This is opening the possibilities for such operators to out-compete traditional hotel operators in terms of total net rent they can offer owners, with both parties mutually benefitting from the increased profits offered by this streamlined business strategy.

My summary

In summary, there remains a clear shortage of hotels within both the ‘budget’ and ‘long-stay’ segments of the market across all major Nordic cities. Conversely, there is no shortage of willing and able hotel operators, with regional and international experience, actively seeking new opportunities to grow their presence of budget and long-stay brands in the Nordics. The main difficulty therefore continues to be the scarcity of suitable sites combined with a diminished awareness and understanding of these asset classes from owners and developers.

It is submitted that these are currently two of the most exciting hotel segments in the Nordics and at CBRE Hotels we are therefore looking forward to seeing how the current shortfall in supply will be met through the development of the Nordic hotel markets, with a hope of seeing a broader spectrum of product offer being made available to prospective guests, sooner rather than later.

Please also read: CBRE has one of the largest hotels teams in the world. (

CBRE Hotels have a dedicated team in the Nordics and are in regular dialogue with a diverse range of international hotel operators seeking to establish their brands within the major Nordic hotel markets.

Please do not hesitate to get in touch with me directly if you’re a hotel owner interested in the budget and/or long-stay segments, if you already have a well-located site for hotel development in any of the major Nordic cities or even if you are simply looking to invest in hotels in the Nordics and wish to discuss appropriate strategy.

Phil Rist

Phil Rist

Phil has left CBRE. Please contact Daniel Holmkvist with any questions you may have. Mail: Phil worked as our Head of Hotel Valuations, Consultancy, and Strategic Advisory Team.

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