According to German investment firm Union Investment Real Estate GmbH, the investable hotel market in Germany grew 9.5% from 2017 to 2018 to reach a record high of €57.5 billion ($65 million), with an average price per room of €145,200 ($164,216).
HAMBURG, 11 June 2019--
- New build activity and rising asset values are driving growth
- Improved performance particularly in the upscale hotel segment
- Continued high investment demand with tight supply
- Seven percent of hotel rooms changed hands in 2018
At EUR 57.5 billion, the investable hotel market in Germany reached a new record level in 2018. According to the latest analysis carried out by Union Investment and bulwiengesa, the market increased in value by approximately 9.5 percent compared to 2017 (EUR 52.6 billion).
The continued strong growth (prior year: +5.1 percent) is due to the sustained high level of new-build activity in the hotel sector and increasing asset values, reflecting a further improvement in the economic situation of many hotels in 2018.
“Market conditions for hotels in Germany remain good. Overnight stays experienced stronger growth in 2018 than at any time in the last ten years, rising by 4 percent compared to 2017. And in the case of approximately 80 percent of top hotels, revenues increased compared to the previous year,” explained Dierk Freitag, departmental head and partner at bulwiengesa. “In terms of value growth, our forecast from the previous year was exceeded by 4.5 percentage points.”
Gains were particularly notable in the upscale segment, which saw good performance in 2018 with RevPar (revenue per available room) at around EUR 91. Of the total of around 396,400 rooms across Germany categorised as investable by Union Investment and bulwiengesa, nearly 44 percent can be attributed to the upscale hotel segment.
“The increases in value in the upscale segment are an endorsement of our strategy of boosting investment in existing properties, with the 5-star superior Steigenberger Hotel in Hamburg and the InterContinental in Berlin being current examples,” said Martin Schaller, head of Asset Management Hospitality at Union Investment Real Estate GmbH.
In future, both market experts anticipate greater increases in capacity and thus in value in the budget and midscale segments, due to the good prospects for these categories in many parts of Germany. Branded hotel companies are increasingly focusing on the development of 2-star and 3-star properties and comparable categories outside Germany’s major cities.
“Potential for strong growth can be seen in numerous secondary and tertiary cities in Germany,” said Martin Schaller. “We intend to enhance our portfolio through the targeted acquisition of development projects such as most recently in Oberhausen, Dresden and Eschborn, involving traditional formats as well as long-stay concepts.”
The market value model shows that German cities with between 100,000 and 500,000 inhabitants saw a greater increase in the size of the investable hotel market in 2018 than cities with over 500,000 inhabitants (excluding Berlin, Frankfurt, Hamburg and Munich).
Across Germany, the average value per room in 2018 was approximately EUR 145,200 and thus around EUR 4,700 higher than in the prior year. The average value for a 4-star hotel was approximately EUR 165,000, while the figure for a 2-star or budget hotel was approximately EUR 119,400.
High demand with tight supply
The growth in the size of the institutional hotel market in 2018 contrasts with a slight fall in transaction volume from around EUR 4.2 billion in 2017 to approximately EUR 4 billion. Whereas in the prior year around 8.0 percent of the calculated total market changed hands, the proportion in 2018 was 7.0 percent.
“Supply remains tight, chiefly because comparatively few portfolio managers are disposing of their properties. As returns in many other asset classes are still very low, increasing numbers of investors are turning their attention to hotels. Due to strong demand, yield compression in the hotel market continues,” said Martin Schaller.
“Rising property prices are reflected in the leases for new hotels. Expensive leases necessitate high room rates, which in Germany can only be achieved in selected locations, in conjunction with special occasions such as a major event or trade show, or by hotels with a distinctive offering. Accordingly, the investable hotel market is becoming ever more varied,” added Dierk Freitag.
Branded hotel segment as driver of growth
Alongside classic city hotels, investors can increasingly choose from holiday and apartment hotels and mixed-use concepts. The branded hotel segment is particularly investable, with a market/hotel room share in Germany, measured against the totality of all rooms in hotels (including bed-and-breakfast hotels), of approximately 56 percent. As the branded hotel segment continues to grow, so too will the size of the market in Germany.
In 2019, Union Investment and bulwiengesa expect further growth of around 7.0 percent in the institutional hotel market.
The Union Investment and bulwiengesa market value model is based on data from companies, official statistics and hotel associations. It enables a comparative analysis of the institutional hotel market for the years 2007 to 2018.
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