Expect more investment and development to come to Berlin as metrics continue to point in the right direction in a capital city that is both trendy and the seat of government of Europe’s strongest economy.
BERLIN—The German capital, home to 691 hotels with just under 73,000 rooms, has seen muted supply growth in the middle of the decade, but that metric increased by 2.6% in 2018, signaling the continued attractiveness of the market to local and European developers and brands.
Through the first three months of 2019, supply increased by only 1.1%, but this can be interpreted not as a systemic slowdown but as a short term “breather.”
In the long run, Berlin’s location as the bridge between East and West will continue to make it attractive to foreign and domestic investors and funds alike, especially now that London’s pre-eminence in Europe in in question in its era of Brexit.
Demand increases have been positive every year since 2003, even in the midst of the Great Recession in 2008. Demand declined in November and December of that year, but even so Berlin’s annual change in 2018 remained positive at 0.8%.
In 2018, room demand increased 4.6%, driven by two very strong months (August and December) when rooms sold increased in both months by more than 10%, driven by strong group and leisure demand.
In 2019, demand in January increased by 12.9%, the single largest monthly increase since May 2011. The annual 10-day convention Grüne Woche (“International Green Week”) had a good year and saw a healthy increase in attendance, with more than 400,000 attendees.
These consistent and strong demand growth numbers point at an underlying strength of business, group and leisure demand stemming from numerous government institutions, universities, museums and conventions and trade shows, and the city’s soccer team Herta BSC Berlin also continues to do well in the top-flight Bundesliga.
Other key drivers for high average daily rate increases in 2018 in Berlin were August’s European Athletics Championships, September’s InnoTrans transport technology fair and October’s European Committee for Treatment and Research in Multiple Sclerosis congress, said Christian Strieder, country manage for, Germany, Austria and Switzerland at STR. (STR is the parent company of Hotel News Now.)
This continued strong demand has yielded high occupancies that have topped 72% since 2012 and last year achieved a new annual record high of 78%. And through the first quarter of 2019 occupancies are already 6.5% higher than they were in the first three months of 2018.
This high utilization logically should lead to pricing power, but that was not always the case. For example, in 2014 and 2016 ADR only increased by less than 2%, but in 2018, though, hoteliers took heart, and ADR increased 4.6%.
So far this year, STR data has shown a steady increase in ADR by approximately 3.2%.
When compared to countrywide performance, as shown Chart 1, it becomes clear that Berlin operators of late have felt positive about their situation, which resulted in ADR increases.
It will be interesting to see if the sharp ADR increases in the third quarter of 2018 (7.6%) can be matched.
Room rates increased in three consecutive months of August through October by more than 10% each month, partially the reason for healthy 2018 results.
The question remains if local hoteliers are able to increase ADR on top of last year’s increases.
Revenue per available room growth has been driven up by ADR growth, and in the most recent past increases have been at a solid pace.
Even though Berlin’s RevPAR change lagged the wider performance throughout 2018, in the most recent past the increases have been strong and sustained as shown in Chart 2.
This strong performance will likely continue to attract attention from brands and developers, and we expect to see a continued influx of investment.
More cranes will dot the Berlin skyline in the future.
Jan Freitag is the SVP of lodging insights at STR.
This article represents an interpretation of data collected by STR, parent company of HNN. Please feel free to comment or contact an editor with any questions or concerns.