Reykjavik, the capital of Iceland, is going through major changes in its hotel industry amid a downtown revitalization which is raising the bar for quality services and properties.
Jökull Alexander Egilsson, general manager of the 195-room Grandi by Center Hotels, which opened on July 1, said there has been much investment in Reykjavik tourism and hospitality, and the future looks very bright.
His hotel is in the growing Grandi district, where space and lower rents have attracted start-ups, IT businesses and food-and-beverage outlets to "stretch out” the downtown area, he said.
“Grandi is a strategic location with business clusters, creative thinking and new housing, so there will be [hotel] demand,” he said.
He added that in the center of the city, the main street has become pedestrianized.
“That has upped the quality and brings a certain standard to the city, although that also brings a new challenge to independent Icelandic chains,” to which he included the Icelandic chain Center Hotels, despite it having now eight assets.
The latest hotel to grace the center of Reykjavik is the 253-room Reykjavik Edition, which has made its facilities and services accessible to residents of the Austurhöfn, a private apartment development immediately adjacent.
The Edition opened on Nov. 9, and both it and Austurhöfn, which has 71 luxury residences and the same owners, sit next to the Harpa Concert Hall & Conference Center on the north shore of the city.
Real-estate management and advisory firm Íslenskar Fasteignir managed the development and opening of both the Edition and Austurhöfn. Björn Gunnlaugsson, head of business development and market analysis at the firm, said such an arrangement is common in many global markets but is a first for Iceland.
He said there had been concern as to whether that deal structure would work in Iceland, which shares the common Nordic and Scandinavian trait of humbleness.
“Sales this year are going very well, aligned to what we had hoped for in a very strong Reykjavik market,” he said, “but it was a big risk, absolutely unheard of here. There was a certain sensitivity, with buyers not wanting to be recognized, but it has turned out to be very positive and has increased the quality [downtown].”
He said the initial development plans for Austurhöfn had been less luxurious, but one of the owners had lived in the U.S. for many years and liked the concept of The Edition brand.
“We’ve been rewarded. Yes, the project became more expensive, but with acceptable profits,” Gunnlaugsson said.
He said the makeup of the owners of the residences also surprised the developers.
“We were expecting about 50% of owners would be foreigners, but of the 60% of units sold, 80% have been sold to Icelanders. I think we will see more of this. Traditionally, developers built more regular homes, and Icelanders took what was offered, but this is of a better quality, a higher standard.”
Upping Quality
Arnar Guðmundsson, head of foreign direct investment at government promotion entity Trade & Invest, Iceland, said tourism and hotels have constituted a great deal of recent growth in the country, so the pandemic has been a shock.
“We are optimistic we will see quick growth again but do not expect to be up to 2018 numbers until 2024 or 2025. Autumn numbers [are] picking up well, and guests are returning to Iceland faster than expected," he said.
“We have not marketed Iceland as a summer destination for some years now, as we do not need to, with the whole emphasis being on off-season months and getting people to travel around the country and not just stay in Reykjavik and its surroundings. Pre-COVID we had more tourists in the winner than we used to have in the summer just a few years ago,” he added.
He said foreign investment in Iceland's hotel industry is increasing, and is focused on quality, sustainability and value for money.
In Reykjavik, new hotels are placed strategically in and around city center. No new permissions are being granted for bed and breakfasts or guest houses along residential streets, and Airbnb rentals are limited to 90 days or a ceiling of revenue permitted per year.
He said the country's magnesium company, which also owns 75% of Icelander Hotels, is mulling the development of a 5-star hotel close to the harbor but in an area not now zoned for hotels.
Gunnlaugsson said large events are also starting to return to Iceland, starting with the Arctic Circle Conference that attracted 1,400 attendees. “Pre-COVID, we saw 2.5 million visitors per year," he said.
He said standards first were raised in 2019 when the Reykjavik Konsulat Hotel, Curio Collection by Hilton, opened, and that quality still is improving.
“The Curio Collection changed the visitor profile. Now, the Radisson [Blu 1919] has just refurbished, and there is to be another food court in a historic building. Everything has increased the sophistication of the offering. We have more variety,” Gunnlaugsson said.
Reykjavik Returning
Center Hotels’ Egilsson said challenges remain as the country emerges from the COVID crisis.
His hotel was due to have opened in 2020.
Staffing is a problem that he and his colleagues are attempting to overcome by working with local and international hospitality and culinary schools to find candidates with an interest in hospitality.
“One of our hotel managers, from Russia, started as an intern five years ago. The biggest challenge is to get things going again. A lot of people went home,” he said.
Egilsson said Icelandic hotel operators did a good job putting together travel packages for Icelanders, and hotels did well on weekends during the pandemic as a result. A government travel incentive helped, offering approximately 5,000 Icelandic krona, (approximately $40) per person, with local companies adding incentives on top of that.
The government also had a furlough scheme to secure jobs, he said.
“The situation now looks very good, considering. Sometimes it might be hard to say that, but we still have demand and good occupancy,” he said. “And when it comes to hygiene, health and safety, we’ve added another perspective. There also is more technological thinking.”
Guðmundsson said he expects all the big international airlines to return soon due to the country‘s strategic position between Europe and the Americas.
Play, a new lost-cost airfare concentrating on European cities, started in 2019 following the collapse in the same year of Wow Air, which concentrated on a mix of European and long-haul markets.
Still, he said, hotel performance could take until 2026 to return to return to pre-pandemic levels.
“We have to see how COVID-19 impacts [the situation], but we are seeing that people now are staying for longer, with the average stay this summer being 9.1 nights. Those from the U.S. stayed more than eight nights, those from Germany 11,” Guðmundsson said.
Upcoming hotels in other parts of Iceland include the Höfdi Lodge, near the small city of Akureyri, which will start construction next year and includes among its developers adventure firm Viking Heliskiing Iceland. In the southern town of Hverageri, the South Greenhouse, or in Icelandic, Gróðurhúsið, is set to open Dec. 1.
Also opened this year is geothermal attraction Sky Lagoon, which is funded by international capital from Phoenix-based Viad Corp. Approximately five miles south of Reykjavik, Guðmundsson said the attraction is providing competition to the famous Blue Lagoon spa and hot springs.