Tourism in Iceland continues to boom since the volcanic eruption of 2010, and more new hotels are on the way to meet growing demand for travel to the country, according to a new report from hotel consultancy HVS.
Media coverage of the volcanic eruption of Eyjafjallajökull in 2010 heightened global awareness of Iceland and its natural beauty, which, along with a sudden affordability caused by the depreciation of its currency raised its profile to foreign tourists, particularly those from the UK, U.S. and Germany, HVS said.
The country’s Keflavik International Airport has seen double-digit growth with arrivals and departures up 16 percent in 2011, 19 percent in 2014, and almost 25 percent in 2015. In the year-to-October 2016 growth was 34 percent over the same period in 2015, with more passengers than the previous year as a whole.
This has been welcome news for a hotel sector that prior to 2010 struggled to achieve annual occupancies of 50 percent. Achieved occupancies rose 36 percent between 2010 and 2015, with those in the capital and outlying areas up 42 percent. In 2015 the capital region achieved an overall occupancy of 79 percent, up from 55 percent in 2010, while the whole of Iceland saw an average occupancy of 64 percent, up from 47 percent in 2010.
According to data provided by Benchmarking Alliance, the country’s capital Reykjavik is fast becoming one of the strongest performing cities in the Nordics with the highest occupancy in 2016 Q1, the strongest rate in Q2, and outperforming other Nordic capitals in Q3.
Room supply has increased 11 percent between 2010 and 2015, and by an annual 6 percent in Reykjavik, where trendy lifestyle properties have opened such as 101, Hotel Bork and Canopy by Hilton. The current development pipeline over the next three years of around 2,000 rooms still falls short of demand.
However, the HVS report warns that such an explosion of the sharing economy combined with a hefty hotel development pipeline could pose a threat to the hotel market, particularly if tourism growth were to slow, or even decline, forcing the hotel sector and the sharing economy to compete head-on. This would result in a fall in hotel occupancies and average rates.
“The growth of Airbnb in Iceland hasn’t affected hotel occupancies yet, but it has created a low-cost alternative which can limit their ability to drive average rates during peak seasons, despite high occupancies,” said report author Stephen Collins, senior associate, HVS London, in a written release.
“Once hotel room supply begins to catch up with demand, it will prove to be an interesting to see whether hotels are able to reclaim the unaccommodated demand that had previously been forced into alternative accommodations when hotels were full.”