Western Europe’s political turmoil might dominate news headlines, but Switzerland’s hotel sector is proving immune to its neighbors’ domestic affairs. Swiss hotels totaled more than 38 million overnight stays in 2018, when both occupancy and RevPAR were up.
GLOBAL REPORT—Political uncertainty across Western Europe is calling into the question the future of hotel investment in the region.
Brexit, the contentious plan for the United Kingdom to exit the European Union, is wreaking havoc on the financial planning and future labor markets of many existing U.K.-based businesses. Paris and other cities across France continue to contend with hordes of “Yellow Vest” protesters, signaling just how fraught the French government’s relationship is with its citizens. Right-wing populism in Austria, Italy and Germany also casts doubt on the future political climate in all three countries.
Meanwhile, Switzerland remains as neutral as ever, and the country’s hotel industry is benefiting from that even-keeled political environment.
In 2018, the country welcomed the Radisson Blu Hotel & Gotthard Residences in Andermatt. To come this year are Swiss group Mövenpick Hotels & Resorts’ new flagship property in Basel, and the debut of Marriott’s Moxy brand in Bern and Lausanne. Yotel is also slated to open three Switzerland properties under its extended-stay brand YotelPad this year; and Dutch hotel group CitizenM will debut in Switzerland with a property in Zurich.
These hotel brands and others are flocking to the polyglot nation precisely because lodging investment has been delivering strong returns. According to STR, parent company of Hotel News Now, occupancy was up 2.2% throughout Switzerland in 2018, while Geneva and Zurich also saw occupancy jump 1.2% and 3.2% respectively. Average daily rate countrywide in 2018 was 213.80 Swiss Francs ($210.49), slipping just 0.1% year over year, while Switzerland revenue per available room saw an uptick of 2.2% for the full year.
Christian Strieder, STR country manager for Germany, Austria and Switzerland, explained the strong Swiss Franc attributes to the high ADR, which he described as “more than 50% of what it is in other Western European countries.”
Swiss hotel markets
Basel and its proximity to the German and French borders has been the exception. Weaker currencies and new hotel developments in these neighboring countries have dragged down demand in Switzerland’s third largest city.
The Swiss capital of Bern has enjoyed steady demand, Strieder said, and “Zurich had the most successful performance of Switzerland’s big cities, which was surprising because a lot of new supply has entered that market in the last few years, especially in the mid-scale and economy segments.”
Conversely, Geneva’s abundance of luxury hotels put pressure on the city’s ADR and RevPAR in 2018, and growing supply is likely to add more pressure, with more than 900 rooms in the pipeline, according to STR.
Developers are also bullish on Zurich, where future rooms account for nearly 18% of the country’s total pipeline.
Among the city’s planned hotels are the Hyatt Regency Zurich Airport The Circle and Hyatt Place Zurich Airport The Circle, together totaling more than 500 rooms that are part of the nearly 1 million square feet comprising the airport’s mixed-use facility known as “The Circle,” including a convention center, retail and office space.
The new-build project is wholly owned by the Zurich Airport Authority. However, it represents an expanding Zurich presence for Hyatt, which owns the city’s Park Hyatt Zurich in the city center.
Future pressures, prospects
Peter Norman, Hyatt’s SVP of acquisitions and development for Europe, Africa and the Middle East, called Switzerland “a mature and stable market,” but noted that both the barriers to entry and the cost of construction are quite high.
“To go through the planning process and to secure the zoning for a hospitality development, or any development, is quite rigorous,” he said. “But if you are able to secure a presence in Switzerland, you know that future supply is limited because of those barriers.”
He further pointed out that as oversupply is not likely to reach the same levels as in other European countries, hotels in Switzerland are also able to position their rates relatively higher.
Riccardo Giacometti, GM of Atlantis by Giardino in Zurich, sees a correlation between rates and the city’s influx of room inventory.
“Zurich has experienced a significant increase in supply and flat demand,” he said. “This has led to a change where the market is now focused on competitive pricing strategies.”
Giacometti said Zurich’s new supply has been concentrated in the upper market, lifestyle and boutique segments, but added “there is room for midscale and budget hotels in Zurich.”
He attributed successful hotel development in Zurich to the city’s longstanding reputation as the country’s financial capital, further elaborating that growing technology and research industries will also benefit the city’s hotels in the long-term.
Norman also described the markets of Bern, Basel and Geneva as powerhouses that continue to attract head offices from major global players because these metropolitan areas have educated workforces.
“From the perspective of both leisure and corporate travel, these cities will remain attractive to us in the future, and even resort locations like Davos are attractive for the international market,” he said.
Switzerland as a whole holds sound prospects for future hotel development, if 2018 overnight stays are a gauge.
According to the Swiss Federal Office of Statistics, the country’s hotel sector registered a record 38.8 million overnight stays in 2018, when every month saw a record increase over the same period in 2017. Visitor arrivals from the U.S. grew by 10%, marking a second consecutive year of double-digit increases and growth in excess of 60% for the past decade.
“Our market research tells us that the average daily spend by American travelers has increased by 25% over the last five years, from 220 (Swiss Francs) to 280 (Swiss Francs), approximately $220 to $280,” said Alex Herrmann, Switzerland Tourism’s director for the Americas.
For U.S.-based travelers, Herrmann said “Switzerland is back on the bucket list.” Americans are adding pre- and post-stays to Rhine river cruises in addition to visiting Switzerland in the low-tourism season and booking leisure trips for outdoor activities such as hiking, biking and skiing, he said. Business and incentive travel also is having a positive effect on arrivals from the U.S., he added.
Corinne Denzler, CEO of Tschuggen Hotel Group, a privately held hotel company with five luxury hotels in Ascona, Arosa and St. Moritz, does not believe political climate holds much influence over travelers going to Europe. “Currency and the fear of potential terrorism attacks are the bigger issues,” she said.