Like most western countries, the Dutch hotel industry has a strong focus on the business segment and as such is very much dependent on the development of both the national and international economies. The Dutch economy was hit hard in the recent financial crisis, leading to an economic decline of 4% in 2009, followed by a slow recovery in 2010. In the third and fourth quarters of 2011, the economy was once more in decline as a result of the European debt crisis. The outlook for the rest of 2012 and 2013 is slow economic growth at best.
Further complicating the economic problems is the political instability in the Netherlands. A minority government of the conservative-liberal People’s Party for Freedom and Democracy and the Christian Democratic Appeal parties, elected in 2009 and dependent on support from the right-wing Party for Freedom, was unable to agree upon new austerity measures and resigned in April 2012. New elections are expected to take place in September, prolonging the uncertainty.
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Marco van Bruggen
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The fall of the government and the lack of agreed-upon austerity measures may negatively impact the rating of the country by organizations such as Moody’s and Standard & Poor’s. As of yet, the Netherlands has maintained its AAA rating, unlike other European countries such as France, Austria, Italy and Spain. The Netherlands also has improved its ranking in the World Economic Forum’s Global Competitiveness Report, from 8th to 7th in 2011-2012, due in part to the efficiency and stability of its financial markets. Dutch businesses are considered highly sophisticated and innovative, rapidly harnessing new technology for productivity improvements. Its educational system and infrastructure also are well regarded.
As a country to do business, the Netherlands scores relatively well, being ranked 31st out of 183 economies according to World Bank’s Doing Business 2012 Index. The country scores particularly high on resolving insolvency, trading across borders and enforcing contracts. More challenging aspects to doing business in the Netherlands are starting a business, dealing with construction permits and protecting investors. Specific challenges for hotel developments in the Netherlands include the zoning laws, which can make redevelopment of former housing or office buildings a time-consuming effort. Amsterdam, the capital of the Netherlands, is ranked as the 4th city to do business in Europe, after London, Paris and Frankfurt, Germany.
Polishing up the Dutch image
As a tourist destination, the Netherlands has a dual image. On the one hand, there is the history and folklore, symbolized by tulips, wooden clogs and windmills. On the other hand, particularly in Amsterdam, is the liberal image of legal soft drugs and prostitution. The latter is slowly being reduced because legislation is limiting the sale of soft drugs to citizens of the Netherlands, and the famous red light district in Amsterdam has been partially repositioned as a fashion district. It is unclear whether this development will be beneficial to the tourism industry in the long term.
In 2011, the Netherlands attracted 11.3 million international tourists, 3% more than in 2010. The increase primarily took place in the first six months, when the economy was still growing. An increase in the number of airlines both at Amsterdam Schiphol Airport and at regional airports and relatively good weather conditions in the spring and fall also were beneficial.
The main countries visiting the Netherlands are Germany (3 million visitors), Great Britain (1.5 million), Belgium (1.3 million) and the United States (1 million). Important new countries are the BRIC countries (Brazil, Russia, India and China), which totaled 475,000 visitors and increased by 24% in 2011.
Tourism is an important sector of the Dutch economy, generating an estimated €35 billion annually ($44.4 billion) and creating 400,000 jobs in 50,000 companies. Despite the economic downturn, 60,000 to 70,000 more jobs are expected to be created in the next 10 years.
According to the Travel & Tourism Competitiveness Report, published by the World Economic Forum, the Netherlands is ranked in 14th place out of 139 countries. High marks are given to the open borders, particularly the efficiency and transparency of customs and border administration, as well as the transport infrastructure and services and the Information and Communications Technology infrastructure, which manages clerical, administrative and management tasks. However, the country is ranked 132nd in terms of price competitiveness. Other negative influences are a low prioritization of travel and tourism in the regulatory framework and a low affinity for travel and tourism in the working population.
As a destination for international conferences, the Netherlands placed 13th in the rankings by the Union of International Associations in 2010 and ranked 13th by the International Congress and Convention Association, also in 2010.
Supply: Quick expansion from hotel chains
The Netherlands has nearly 2,200 hotels with almost 95,000 hotel rooms. The hotel market is dominated by Amsterdam, where 21% of all hotel rooms are located. On average, 56% of all hotel rooms in the Netherlands are in the 4- and 5-star categories. This same division is true for Amsterdam. The 5-star market is virtually nonexistent outside of the capital, which offers 63% of all 5-star hotel rooms. The other main cities, however, have a much stronger focus on the 4-star market, which reflects their focus on the business segments. By contrast, Amsterdam also has a strong representation of the 1- and 2-star segments, indicative of its equal attractiveness to both the tourist and business markets.
The Dutch hotel market increased 4% last year. In the last 10 years, supply has increased 22%; in the last 15 it has increased 44%. The growth in the past decade has primarily been in the 4-star segment, which increased 66%. The 3-star segment also increased, but the 1-, 2- and 5-star segments decreased. The decrease in the lower segments reflects an upgrading of the hotel market. The decrease in the 5-star segment was mainly caused by a redefinition of the criteria in 2004, causing many 5-star hotels to be reclassified as 4-star hotels.
The hotels in the Netherlands have a high rate of chain affiliation: only 39% of the hotel rooms are still independent of hotel chains. This is a reversal from 10 years ago, when only 35% of the hotel rooms were chain affiliated. No fewer than 50 hotel chains are active in the Netherlands, with a total of 63 hotel brands. Of the chain-affiliated hotel rooms, 53% are part of an international hotel chain. Still, the largest hotel chain in the Netherlands is of Dutch origin: Van der Valk Hotels. The second and third largest hotel chains are the international chains NH Hoteles and Accor.
Most recent hotel developments also are chain affiliated, ranging from established international brands such as the 553-room DoubleTree by Hilton Amsterdam to relatively new hotel chains such as EasyHotel and The Set (with Conservatorium Hotel Amsterdam).
Demand: a shift from business to leisure
The demand for hotel rooms in the Netherlands generally follows the development of the economy. Therefore, it is no surprise that hotel results decreased in 2008 and2009, and recovered slowly in 2010-2011. The average room occupancy in the Dutch 3-, 4- and 5-star hotel market increased from 65.1% in 2010 to 66.6% in 2011, which is still well below the level of 2007. Despite the ongoing financial crisis, average room rates also increased in 2011 for the first time since 2007. The rates increased from €93 ($118.05) to €99 ($125.67), which is an increase of 6%.
The division between the hotel market in the capital and the rest of the country also is visible on the demand side. In Amsterdam, occupancy levels have historically been close to 80%; even higher for hotels in the city center. In the rest of the country, occupancy levels of 65% to 70% are the norm. The recent recovery also was primarily visible in Amsterdam, where the occupancy increased from 75.1% in 2010 to 77% in 2011, and the average room rates increased by 12% to €122 ($154.87). Outside of the capital region, occupancies increased only slightly, and average room rates dropped 2%.
In the past, demand in the Dutch hotel market was split between business and leisure approximately 60/40. In recent years, this has changed, as the economic crisis led to a decrease in business demand, particularly from international business travelers. The recent recovery has come primarily from the leisure segments, and particularly from domestic tourists and from leisure guests from nearby countries such as Germany and Belgium. Still, the most important countries of origin for the Dutch hotel market remain Great Britain and the U.S., especially in the Amsterdam market.
Market outlook: short term and long term
In the short term, the market outlook for the Netherlands is relatively pessimistic. The first results for 2012 indicate a new downturn in hotel occupancies and average room rates, particularly in the Amsterdam market. The continued financial difficulties in the European region are expected to result in low growth rates, especially for business demands.
The situation is further complicated by a continued increase of supply. On the one side, many long-term developments, starting during the recent boom of 2007-2008, are now entering the market. Furthermore, the failing office market has resulted in a number of fast-tracked transformations from offices to (often very large) hotels, most located on the outskirts of cities such as Amsterdam and Rotterdam. In Amsterdam, new developments range from the hotel/hostel Meininger (opening July 2012) to the 5-star Waldorf Astoria (opening 2013). In Rotterdam, planned openings include a nhow hotel from NH and more budget-oriented development from upcoming hotel chains easyHotel and CitizenM.
In the long term, the outlook remains positive. Despite the current downturn, the economy in the Netherlands and the surrounding companies is expected to show a moderate but consistent growth over the next five to 10 years, which bodes well for the business demand. Additionally, the Netherlands remain an attractive tourist destination, particularly for upcoming markets such China and Brazil. The coming years will show if this demand can increase fast enough to meet the growing supply.
As senior consultant with Horwath HTL, Marco van Bruggen has carried out over 150 market analyses, feasibility studies and valuations for stand-alone and mixed-use projects including hotels, meeting centres, golf courses and leisure facilities in The Netherlands, Belgium and Luxembourg. Notable projects include a study into the hotel market in all 10 municipalities along the Flemish coast, an analysis of hotel development potential and opportunities in the Dutch province of Zeeland and a feasibility study for Room Mate Hotel Amsterdam, currently under construction. Additionally, Marco organises and coordinates all annual and bi-annual market statistics available from Horwath HTL Benelux, including the annual Hotel Statistics (HOSTA).
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