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Tough time waiting for a vaccine

The hotel market has really felt the impact of Covid-19. Things looked brighter for a moment when society reopened before the summer, and a number of hotels achieved good turnover in July. However, earnings have now slumped again.

Published 11.11.2020 00:00

Last changed 11.11.2020 13:56

Times have been very hard in the hotel sector since March. It admittedly experienced a small ray of sunshine in the summer, when many Norwegians holidayed in their own country. July was saved to a great extent by a sharp rise in domestic tourism, so that turnover fell by only 3.5 per cent from the year before.¹ After the summer, however, with Norway’s tourist season over, the infection rate rising and the health authorities imposing new restrictions, hotel turnover has slumped again.

A 47.5 per cent decline in business travel was registered from April-October, compared with the same period of last year.² Many people have adapted, and more meetings are now being held virtually. Seminars and other events are being kept to a minimum.

Development in revenue per available room (RevPAR) in Norway so far this year

Source: Statistics Norway. The figures show the annual change in the three parameters based on the January-September period.

Figures from Statistics Norway show that just over 12 million overnight stays have been registered so far this year. That represents a decline of 38.7 per cent from the same period in 2019. Total turnover fell by 39.4 per cent over the same period, while occupancy was down from 63 to 36 per cent in July-October.

The hotels have had to be creative and adapt to special circumstances. One example of such measures is the sale of “season tickets” for a specified number of overnight stays. Others include offering short-term lets for 30 days and daily rental of rooms for office use.

When occupancy falls a lot, hotels typically suffer a double whammy because prices also come under pressure. Exactly that has happened since the summer. Prices have declined on a national basis by 13.2 per cent from July to October, with revenue per available room (RevPAR) down nationally by no less than 28.9 per cent so far this year.

Revenue per available room (RevPAR) so far this year

Source: Statistics Norway. The figures show RevPAR development in January-September for the relevant years.

Oslo is struggling most among the large cities. So far this year, hotel prices in the capital have fallen by 13.9 per cent from the same period of 2019. Occupancy there is down by 43.9 per cent. The decline in both prices and occupancy means that RevPAR is down by 51.6 per cent. Oslo’s hotel market is based to a great extent on both business travel and foreign tourists. Travel activity by the latter is down by 56 per cent so far this year, while business trips have fallen by 55.8 per cent.

At the time of writing,³ several European countries have entered their second period of extensive lockdown and measures are also becoming more stringent in Norway as infections increase. On the positive side, the government is maintaining the scheme which covers some of the fixed costs in the travel sector until 28 February 2021. A number of hotels now have rent commitments which exceed their revenues, and some are seeking help from their landlords.

Supply growth will be moderate next year, with few projects initiated in 2020. Scandic Helsfyr, for example, opened 197 new rooms this November and now offer 450 after a total renovation. Nordic Choice is opening a hotel with 217 new rooms at HasleLinje in 2021, while Radisson Red will open a new hotel at Økern Portal with 224 rooms in 2022.

Transaction market

At the end of 2019, before the virus outbreak began, Storebrand Eiendomsfond Norge acquired both Scandic Hotel Portalen in Lillestrøm and Scandic Helsfyr in Oslo. So far this year, we have only registered two hotel transactions in Norway. After Covid-19 broke out in the country, Realkapital Hotel acquired a 5 600 m² hotel at Kongens gate 5 and Nedre Slottsgate 2 in central Oslo. This is currently empty.

An average of around seven properties a year have changed hands over the past decade. The transaction market in 2020 has been heavily affected by the crisis in the travel sector following the virus outbreak. We must go back to the time after the financial crisis in 2010-12 to find lower figures.

Great uncertainty prevails over just how much hotel properties have fallen in value, because good references are not available. However, the decline has undoubtedly been substantial – as the stock market among others indicates. One example is the share price for Pandox A, which has declined by 58 per cent since the end of February.4

1 Source: Statistics Norway at September 2020 – Norwegians accounted for 93 per cent of overnight stays in July, up from 62 per cent last year.
2 Statistics Norway at October 2020.
3 4 November 2020.
4 At 4 November 2020. Note that the share price shows the change in the value of the equity, not the property portfolio. Where companies have substantial debt, the implicit decline in property value is substantially lower.