Revenues in the Dutch hotel industry are expected to rise by 3% in 2017, due in part to higher room rates. The sharp increase in the number of hotel guests is sparking interest in the construction of new hotels, particularly from hotel chains and investors from Germany and the Middle East.
Amsterdam is still the focus of much investor demand, although the rest of the Netherlands is attracting increasing attention. The current and expected growth of tourism justifies this investment. However, there are risks, especially for large hotels that open in less popular areas. They will be relatively hard hit if tourists stay away, and will recover slowly.
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Increase in tourism
The hotel industry is benefitting from the increase in tourism. In 2012, there were 21 million overnight stays in the Netherlands (CBS). In 2016, that number rose by 23% to nearly 26 million. Almost half of the guests came from abroad; the remainder were domestic tourists.
Economic growth in countries such as Germany and the United States, the popularity of European city trips and a growing global population are all boosting tourism. We expect this to continue in 2017.
Supply also increasing
As the number of hotel guests in the Netherlands has increased, so has the number of rooms – by more than 12% since 2012. However, supply has not kept pace with demand. As a result, the hotel occupancy rate has risen, despite competition from new entrants and alternative accommodation options.
This is making it attractive to open new hotels or expand existing assets. We are seeing particular interest from hotel chains and investors from Germany and the Middle East. The number of building plans submitted in the past year was the highest since 2011. Amsterdam continues to be the focus of interest, with old office blocks, a music hall, a former butcher’s shop and possibly even a cemetery planned for conversion (Hotelbouwplannen).
The supply growth also carries risk, however, now that hotels are being built in areas that were previously classified as ‘less attractive’. Places that attract fewer visitors (business travellers and recreational tourists) will be particularly hit hard in the event of an economic downturn and will recover relatively slowly. The risk is also greater for investors in these areas who are highly exposed: supply is, after all, less flexible than demand.
The increase in tourist numbers has pushed up hotel prices by 13% in the last two years (CBS). In the same period, the price level of goods and services rose by less than 1% overall in the Netherlands.
In 2016, room rates rose by 8%, the biggest increase in 20 years. This increase was mainly in Amsterdam. The largest spikes were in March (due to the early Easter), August and October. Fuelled by tourist arrivals and the favourable economic conditions, we expect another price increase in 2017, albeit a less significant one.