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Tourism market assessment – Iceland


This report is intended for investors assessing market conditions for investing in Icelandic hotels. The report covers the development of tourism since 2003 with regional tourist distribution, number of hotels, rooms and beds from 2000 on a regional basis, utilization rates, and a range of derivative indicators used to gain insight into development strategies employed in various regions. In addition, it provides insight into regional saturation levels and opportunities and the pros and cons of investing in Icelandic hotels. The report it loaded with charts containing actual and derivative data.

EXCERPT

Although the number passengers arriving in Iceland through Keflavik airport has increased over the years, the 12-month average shows a steady decline of foreign traffic since November 2009. Total passenger traffic decreased November 2008 to August 2010, at which point Icelandic traffic increases. This reflects the world economic situation which has caused rising unemployment at the international level with resulting effect on residual income.

The increase in room availability accurately reflects the increase in hotels. Notable is the higher hotel efficiency in Southern Iceland than the Capital region, where the accumulated increase in rooms measures 95.6% against 74.7%. The increase of room availability in Eastern Iceland is noteworthy, although there appears to be ample room for further expansion. With the exception of the Capital region (which is possibly saturated) and Southern Iceland, there ought to be room for hotel development in most parts of the country.

Hotels in the Capital region, South and Southwest, West and Westfjords attract primarily UK, German and USA tourists, whereas the East, Northwest and Northeast seem to attract an overwhelming majority of Germans. The occupancy rates in hotels and guesthouses reveal a drop in room occupancy which is a likely result of market saturation. The room occupancy rate for the Capital region has dropped from 58.8% December 1999 to 52.1% December 2010. The situation is even more alarming in the South where the rate fell from 46.3% to 42.6% during the same period. The bed occupancy rate reflects the same pattern. The room occupancy rates for the other regions rarely cross 30%.

Given the economic situation in Iceland, investment in property is unlikely to yield positive returns until 2018. This can change quickly, however, as the economy moves at a higher frequency than do most others. The damage to the economy through senseless IMF-influenced central and local government decisions both before and after the collapse of the financial system will take at least five years to turn around. Unemployment has reached record heights and can well be expected to reach levels of around 15% (mild estimate) before economic recovery takes place. Constant tax hikes and expenses placed on businesses and households cause a contraction in consumption that reduces consumer spending power which forces business to either close or resort to layoffs. It is a vicious cycle that fuels itself and should lead to elections before year-end 2011.

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