Hotel, Tourism and Leisure. Special Market Reports Issue 9 - HELSINKI, FINLAND. January 5

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1 Hotel, Tourism and Leisure Special Market Reports Issue 9 - HELSINKI, FINLAND January 5

2 COUNTRY OVERVIEW Finland is located in Northern Europe, bordering the Baltic Sea and neighboring Russia, Sweden and Norway. It is one of the Nordic countries, together with Norway, Sweden, Iceland and Denmark. The World Economic Forum has ranked Finland as the third most competitive country in the world in 2011, 2012 and It benefits from effective and transparent public institutions, excellent public healthcare, infrastructure as well as world-class public education. Finland is an innovative economy, fuelled by a highly skilled labor force. The economy relies on a strong service sector (71.2% of GDP in 2012), followed by industry (25.9%) and agriculture (2.8%). The gross domestic product of Finland was $250 billion in 2012; however, since 2012, its economy has been in slight recession. One significant contributor to the slowdown was the acquisition of the mobile phone business of Nokia Oyj by Microsoft. The headquarters of Nokia, just outside Helsinki, was taken over by Microsoft and 25,000 former Nokia employees joined Microsoft. Despite the significant changes in the telecommunications industry of Finland, the European Commission forecast for 2014 and 2015 show that the country will enjoy a gradual recovery. The major tourism regions in Finland are Finnish Lakeland, Finnish Lapland and Southern Finland, with the capital city Helsinki being the top destination in the country. Finland is an EU member state, benefiting from freedom of movement. TRAVEL AND TOURISM Helsinki is a political, cultural and commercial capital and provides the broadest travel infrastructure in Finland. Located on the coast of the Baltic Sea in the southern part of the country, the city sees significant business demand and is also attractive as a recreational travel destination, and in 2013 TripAdvisor users ranked Helsinki fifth in its list of top 10 European destinations on the rise, after being the World Design Capital in Visitors are drawn to the technology, history, architecture and style, all surrounded by nature. Helsinki is well connected to Estonia, Russia, Sweden, Germany and Poland with multiple scheduled ferry services. In fact, the Port of Helsinki is Finland s busiest port, and its various harbours served nearly 11 million passengers in Scheduled ferry passengers from Sweden and St. Petersburg generate a significant proportion of the city s hotel demand. Trains connect Helsinki to other major cities in Finland as well as Russia. A high-speed train line Allegro was introduced in 2010 to carry passengers between Helsinki and St. Petersburg in just 3 hours and 36 minutes. Currently there are four Allegro trains in service, with a total capacity of 1508 people. Tuulikki Becker, the CEO of Helsinki Marketing, said the city is internationally recognized as a trendy, cool and modern capital with lots of appeal, including culture, beautiful seaside as well as urban nature. She sees a bright future for the city and believes Helsinki would benefit from more hotel capacity in all categories. Source: ICCA 2013

3 Meetings & Conferences Helsinki is a very popular conference destination, ranking 24th globally on the International Congress and Convention Association Statistics Report in Helsinki was 17th within Europe. According to Helsinki Marketing, the city has excellent facilities for up to 10,000 delegates. Many congresses have been booked in Helsinki in the coming years, including a congress of the European Society of Human Reproduction and Embryology with 8,000 participants and a financial impact of 15 million euros in Helsinki Aiport Tilastokeskus The city is served by Helsinki-Vantaa Airport, 18 kilometres to the north. This is the main airport for all international and domestic flights and in 2013, the total number of passengers amounted was over 15.2 million. The share of international passengers has grown from 74% in 2004 to 84% in The busiest international routes for Helsinki Airport are mainly to other Nordic capitals as well as London and Riga, as seen in the table below. TRAVEL AND TOURISM Market Segmentation Helsinki is a versatile destination, appealing visitors travelling for business and leisure. The hotel demand is evenly split, with 47% of guests from Finland and 53% from other countries, according to Finnish statistics organization Tilastokeskus, and the purpose for visits is equally balanced between business and pleasure. Finavia The total number of passengers has steadily grown over the past ten years. International traffic has grown by more than 60% from 2004 to 2013, while domestic traffic has fallen by almost 15% during the same period. Domestic long-range bus and rail services are also supported by well-maintained highways that link all Finnish cities. Domestic guests filled 47% of the hotel rooms in Helsinki in 2013, and visitors from European countries and Russia filled most of the remaining rooms according to Tilastokeskus. From 2009 to 2013, nights spent in Helsinki by Finnish guests grew by 18%. Nights spent by Russian guests grew by 30%, Japanese guests by 48% and Chinese guests by 52%. During the same period, however, demand fell for guests from the United Kingdom, Germany and France by 13%, 12% and 6% respectively.

4 The ongoing political and economic turmoil in Russia is likely to have an impact on Russian overnights and spending. However, while Russia is a significant market, comprising of 9% of overnights in 2013, the city itself is not overly dependent on Russian tourism. Tilastokeskus International guests spend, on average, more nights per visit than domestic guests. Both domestic and foreign visitors spend more time in Helsinki during June, July and August. Shorter durations of visits signal that most visits are short business trips or city getaways. Finnish hotel demand has been growing steadily over the past ten years, with stronger growth recorded in leisure demand. In 2013, 50.5% of total nights spent by Finnish guests in Helsinki were for leisure and 47.2% were for business. Hotel demand from foreign visitors has fluctuated over the years. Business demand peaked in 2006 and 2008, both years recording over 900,000 nights spent for business visits. After the financial crisis, however, business demand fell below 800,000 and has not reached pre-crisis levels. There was a dip in business nights from 1.51 million in 2013 to 1.42 million in This was potentially an effect of the acquisition of Nokia. Leisure demand has grown steadily and reached over one million room nights in and 2013 both registered over one million room nights as well, but slightly less than in Room night demand from foreign countries was relatively balanced at 58% for leisure and 40% for business. Total nights spent in 2004 was 2.5 million and 2013 saw nearly 3.3 million room nights; a compound annual growth rate of 2.7%. Overall hotel demand in Helsinki is very balanced between domestic and international demand and further by business and leisure demand. The balanced geographic mix also ensures stability in trading. However as nearly half of the demand is primarily driven by Finnish guests, Helsinki hotel performance will be relatively dependent on Finnish economy. Nordic capitals have all seen a rise in leisure demand, which is a trend believed to continue in the future as these destinations continue to grow their profile.

5 Hotel Supply Hotel supply in Helsinki has been steadily increasing in the past ten years. The graph below shows the development of hotels versus development of rooms over the past ten years. Hotels in Helsinki grew from 55 in 2004 to 61 in 2013 according to Tilastokeskus. During the same period, 1447 rooms were added into the supply; a compound annual growth rate of 1.86%. The average size of a hotel in Helsinki has also grown. In 2013, Helsinki had 8,586 hotel rooms, an average of 141 rooms per hotel, up from 130 rooms per hotel in There are only five properties in Helsinki achieving a five-star service rating, with the majority of hotels being 4 and 3 star hotels. Domestic Hotel Brands in Helsinki Sokos Hotels 6 hotels Cumulus Hotels 3 hotels GLO Hotels 3 hotels Omena Hotels 2 hotels Next Hotels 2 hotels International Hotel Brands in Helsinki IHG 5 hotels Scandic Hotels 4 hotels Radisson Blu 4 hotels Best Western 3 hotels Hilton 2 hotels Starwood 1 hotel There are three Holiday Inn hotels, one Hotel Indigo and one Crowne Plaza i Helsinki. Three of these brands are owned by InterContinental Hotels Group, making it the most visible global group in Helsinki. Starwood has the management agreement with Hotel Kämp, branded as a Luxury Collection hotel. Hotel Kämp is famous for being the first international deluxe five-star hotel in all the Nordic countries. The majority of hotels in Helsinki belong to one of the Finnish hotel brands, such as Sokos, Cumulus, GLO, Omena and Next. Sokos Hotels is Finland s largest hotel group and it has the largest number of hotels in Helsinki with six properties. Sokos Hotels also has properties in Estonia and St. Petersburg, and Omena hotels, a unique self-service group of hotels with no reception desk or receptionists, has also expanded to Stockholm and Copenhagen. In June 2014, 18 hotels in Helsinki were internationally branded. The following list shows the largest brands operating in Helsinki in June Global hotel companies with no exposure in Helsinki, as of November 2014, include Marriott International, Accor, Choice, Hyatt and Wyndham. In a 2011 press release, plans were announced to open a 272-room Marriott just ten minutes from Helsinki city center, but the project has not moved forward since then. Largest investors in Finnish hotels are CapMan Real Estate Fund and Pandox. CapMan owns 38 hotels in Finland and in 2014 they acquired Kämp Group, the largest hotel group in Helsinki. Pandox is one of Europe s leading hotel-focused property companies with over 100 hotels mainly in the Nordic countries. London & Regional Properties, one of the biggest private property companies in the United Kingdom, has also been active in hotel transactions in the area. Largest hotel operators in Finland are S-Group, who own and operate Sokos Hotels, and Restel, who operate mainly Cumulus and Holiday Inn hotels. Scandic is also a major operator in Finland and most countries in Northern Europe. The hotel industry in Helsinki is supported by a high standard of hospitality education provided by institutions such as Haaga-Helia University of Applied Sciences.

6 Hotel Performance Hotels in Helsinki are relatively stable in their performance, considering the financial crisis in 2009 which took the average occupancy down from 69% to 62%, according to Tilastokeskus. Occupancy went back to 69% for 2011 and 2012 and then fell slightly to 67.5% in Full recovery from the crisis has not yet been achieved in Helsinki, and revenue per available room has not reached over 50, where it peaked in 2006 and In 2013, RevPAR fell from in the previous year to It should be noted, however, that Helsinki has seen some new entrants into the market, as well as increases in room supply from existing competitors after the financial crisis. Therefore the slowdown in performance can be partially explained due to new supply being introduced to the market. Helsinki is also a seasonal destination. The first four months of the year have stable performance with relatively low occupancies but strong rates. The average ADR in 2013 was 69.20, average occupancy was 67.5% and RevPAR was Starting from May, the warm summer months entice a lot of leisure travelers; however, along with most markets, there is a very sharp decrease in business demand in July for both domestic and international markets, making July the weakest performing month. Occupancy remained relatively strong at 71% in July 2013, but average room rate sunk to and RevPAR went down to September traditionally has the strongest average rate as businesses come back into play and December sees another slowdown in business due to the holiday season. In September 2013, average ADR of 80.04, occupancy of 75.6% and RevPAR of were recorded for hotels in Helsinki. The graph below shows fluctuations in occupancy, average daily rate and revenue per available room in Helsinki is a rate-driven hotel market, where higher rates for business travelers drive the majority of business. Lower leisure rates are used to maintain occupancy during the months of July and December. Growing overseas leisure demand for Nordic capitals, including Helsinki, might prompt hoteliers to increase rates in June, July and August.

7 OUTLOOK There is a moderate amount of hotel investment and expansion in Helsinki, primarily driven by hotel investors who own a portfolio of properties in Helsinki already. In recent years, new hotels have been built mainly in Vantaa, close to the airport, but we are now seeing several new hotel projects underway in the city centre. There are plans to increase the number of rooms in existing Holiday Inn hotels, as well as a few new builds in Helsinki. Restel will be introducing a new, environmentally friendly 120-room hotel in Bulevardi in 2015 as well as a modern 200-room city hotel with two restaurants in Töölö by summer Another hotel development in the pipeline is an art hotel, specializing in Finnish modern art, which is to be built on the Island of Jätkäsaari. Royal Ravintolat, one of the major owners of restaurants and hotels in the capital, also has plans to create Finland s first ecologically heated hotel with 130 rooms. Kasperi Saari, from Royal Ravintolat, is positive about Helsinki s hotel industry. He believes emphasis should be made on improving the hotel product and service quality. Helsinki is a competitive destination and Saari believes that as new hotel developments are completed, demand will grow on par with the supply, as we have seen in neighboring Stockholm. In 2014, CapMan Real Estate Fund acquired Kämp Group hotels, increasing their portfolio of hotels in Helsinki and investing in the growth of lifestyle brand GLO Hotels. A new luxury lifestyle hotel development from CapMan, called Klaus K Sky Lofts, has opened last year in August. Helsinki and Finland generally are lagging behind in total tourism demand, but industry experts are confident that demand for Finland will continue to rise steadily in the coming years. Helsinki s architecture and strategic seaside location and facilities will serve to support and generate the growth in the tourism demand. The number of overnight stays in Helsinki is expected to rise, especially with the growth of Asian source markets. Helsinki City Tourist and Convention Bureau has cooperated with other Nordic cities tourism organizations in a project called Chinavia 2020, in an effort to gain deeper knowledge of China, Chinese visitors and readiness of Scandinavian cities to serve them. The ultimate goal of the project is to attract a greater number of Chinese visitors to Scandinavia. Another key driver in developing tourism demand from Asian markets is Finnair, the Finnish national airline, who are currently offering flights from various Asian countries including Beijing, Shanghai, Hong Kong, Tokyo, Singapore, Bangkok, Delhi, Seoul as well as other major cities on the continent. The outlook for the hotel industry in Helsinki is excellent although Helsinki is heavily lagging behind neighboring capitals Oslo, Stockholm and Copenhagen in terms of hotel rate performance. As tourism demand grows, hoteliers in Helsinki should start aggressively increasing their rates. Luxury hotels in Helsinki especially have a huge rate gap between them and comparable properties in other Nordic capitals. The trends driving the hotel industry forward in Helsinki are innovation and the desire for new, unique experiences. Industry consensus in Helsinki is to design unique lifestyle hotels which offer an experience rather than just a simple room. As international operators are expanding globally with new lifestyle brands like Edition, Andaz, Element and Aloft, this trend towards a more boutique and lifestyle hotel product will surely follow in Helsinki. For example, Royal Ravintolat currently have two lifestyle properties under development, and Kämp Group recently announced a new Glo Maxim lifestyle hotel to be developed within a movie theater in the city center. As a highly innovative economy with a skilled workforce, Finland offers tremendous opportunity for innovations both in hotel development and operations. New concepts will capture the market in Helsinki and older properties which fail to reinvent themselves will lose their value in the coming years.

8 HORWATH HTL As a global leader in hotel advisory services, Horwath HTL is uniquely positioned to provide both the depth and breadth of advice required by leading hotel owners, investors, financiers, and operators. The global team of Horwath HTL comprises 51 specialist offices in 39 countries, with more than 200 professionals dedicated to hotel, tourism and leisure projects and is the world's largest consulting organisation specialised in the hospitality industry. Additionally, Horwath HTL is a member of Crowe Horwath International, one of the largest accounting and consulting networks in the world, with 650 offices in more than 100 countries, and a recognised founder of the Uniform System of Accounts for the Lodging Industry (USALI). Horwath HTL UK adds value for clients through indepth market knowledge in both established and emerging markets, financial and hospitality technical expertise and unrivalled experience. Our services include: market and feasibility studies valuations and appraisals asset management strategic planning operator assessment and selection hotel consulting industry research project development services Our team in Horwath HTL UK has a particular expertise in virgin and emerging markets. FOR FURTHER INFORMATION PLEASE CONTACT: ERLEND HEIBERG Managing Director eheiberg T +44 (0) Erlend is the head of Horwath HTL's UK office. He also serves as the liaison with Horwath HTL's international offices for cross border assignments. With more than 18 years of international operational hotel and hotel real estate experience in EMEA and the Americas, Erlend has worked with a number of the major consultancy firms in the industry, including Jones Lang LaSalle Hotels, CB Richard Ellis Hotels and InterContinental Hotels and Resorts. Erlend is a Member of the Royal Institution of Chartered Surveyors and a Fellow of the British Association of Hotel Accountants. PATRICK ANGWIN Senior Director pangwin T +44 (0) Patrick is Senior Director with Horwath HTL UK. With 21 years of international operational and hotel advisory experience across EMEA, Patrick has worked for both internationally renowned hotels and some of the leading advisory firms in hospitality. Following an early career in operations, Patrick joined specialist hotel consultancy firm PKF where he worked on a broad range of hotel-related engagements. Since then he has held a number of senior positions with both Ernst & Young s Hospitality and Leisure Advisory team and Vision Hospitality Asset Management. He is a member of both the Institute of Hospitality and the British Association of Hotel Accountants. ARVO HARTIKAINEN Analyst ahartikainen T +44 (0) HORWATH HTL UK 15 Old Bailey London EC4M 7EF United Kingdom +44 (0) info@horwathhtl.co.uk Arvo joined Horwath HTL UK in 2014 and is working together with the senior team assisting on valuation and consultancy assignments. After completing his education in Finland, Arvo moved to Malta to study a degree in Tourism. During his time in Malta, Arvo gained academic insight on the world of tourism, travel and hospitality with a focus on management, finance and innovation. Arvo has operational hotel experience from Malta and London with InterContinental Hotels Group, Radisson Hotels and Marriott International.

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