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Hotel investment trend prompts overcapacity concerns

Finland's top chains compete to build new hotels and update existing properties, but will there be enough customers?

rakenteilla oleva Marriott-hotelli Tampere-talon vieressä
New hotels are popping up like daisies in Finland Image: Marjut Suomi / Yle

Finland's hospitality sector is making large-scale investments in new hotels and the renovation of older hotel properties, leading to a concern that supply may soon surpass demand.

Aki Käyhkö, CEO of Finland's largest chain of hotels, Scandic Hotels, says that he is worried about the development.

"There is a chance of at least momentary overcapacity. The fact that more hotels exist does not create more demand," he said.

Jaana Matikainen, vice-president of SOK's travel and hospitality business, agrees that investments have to be carefully considered.

"There are massive renewals. I don't recall that there was ever a time when so much new capacity entered the market," she says. "This is the most interesting phase in the hotel world that I have encountered in my career; there are so many new players, brands and service concepts that are revitalising the whole industry."

New hotels in Helsinki, Tampere and Turku

Multimillion-euro building projects are in the works throughout Finland. In Tampere, for example, the Marriott hotel chain is opening a new property this winter and Lapland Hotels is planning to build a hotel in the rail depot near the Tampere Arena in 2021.

"All of the hotels in the Tampere market will tighten their belts for a while before demand picks up again, unless the Arena will host a ton of new events," said Scandic's boss Käyhkö.

Since its acquisition of the Restel Hotels chain, Scandic Hotels is Finland's largest operator in the industry, with 67 hotels and some 12,500 rooms on offer. The next largest player SOK runs 43 Sokos brand hotels and 8 Radisson Blu locations, translating into 10,000 rooms.

Scandic is currently building a new facility in the Central Railway Station in VR's old administrative offices. It has also purchased two existing hotels, Hotel Pasila in Helsinki and Hamburger Börs in Turku, from SOK.

SOK has been busy renovating older hotels, carrying out 15 property facelifts in the last five years. Two new hotels are also being built: at a location in Helsinki's Pasila that will be completed by the end of this year, and in Turku's Kupittaa area that will be ready in late spring.

Small updates every ten years

Scandic said that it uses 10 million euros annually repairing and maintaining its hotels. The Eden Spa and Conference Hotel belonging to the chain is being completed renovated this autumn in the city of Nokia in the Tampere region, while hotel staff have been laid off for six months during the refurbishment.

"Every time we build a new hotel, we have to plan ahead for some kind of renovation after ten years. A complete overhaul is normally necessary after 20 years. Of course, there is a bit of variation with this," said CEO Käyhkö.

Both hotel chain representatives said that their businesses try to take ecological issues, sustainable development and energy efficiency into account. Furnishings are recycled if at all possible, for example.

"We don't work by the principle that everything has to be switched out for something new. Whatever we can use again, we use again," SOK's Matikainen said.

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