In Germany, a shift to franchises in budget space

(Etap Germany)

Investable hotels in Germany currently have a combined market value of EUR47.1 billion, according to a study by Union Investment Real Estate and Bulwiengesa.

The leased-dominated country has seen its stable returns attract investors in recent years, but a rise in budget hotels could drive a move to franchises.

According to Union Investment Real Estate and Bulwiengesa, 47 percent of all hotel rooms in Germany can be classed as investable, with a combined market value of EUR47.1 billion. The majority are in the midscale and upscale hotel categories.

Martin Schaller, head of asset management hotels, Union Investment Real Estate, said: “These figures illustrate the importance of the hotel asset class within the commercial property market. In 2015, the hotel segment had the highest transaction volume as a proportion of the total market value of the respective asset class. This clearly shows that hotels are a highly liquid asset class.”

Union Investment put its money where its mouth is; shortly after releasing the report it acquired the Holiday Inn hotel development in Hamburg, for its UniInstitutional German Real Estate fund.

Move Downscale

While the study spoke of the midscale and upscale categories, a report from PKF commented on the rise of the budget sector in the country, where it described the classic budget hotel as having “all but vanished,” while the segment has become highly diversified and individual.

Both reports echoed comments made by Kay Strobl, head of advisory & valuation Germany, Christie & Co, who described investors and developers being most interested in hotels in the budget and four-star segments with a selective smaller percentage of overall activity taking place in the five-star and luxury segments.

According to STR Global, hotels in Germany saw revenue per available room increase by 6.5 percent, in excess of the overall 1.7 percent GDP growth last year.

Strobl said: “This positive trend has not gone unnoticed by hotel investors who no longer consider hotels mere risky operator-run businesses, but rather a serious asset class in the property segment. The image of hotels as an attractive investment vehicle has significantly improved in recent years, not least due to the availability of leasehold assets.”

May saw Whitbread buy two sites in Germany to convert to the Premier Inn brand, having flagged-up at its results that it would consider buying property in the country and rebranding in order to accelerate assessment of the market. Whitbread has now secured four Premier Inn sites and 760 bedrooms in Germany as it targets six to eight hotels open and trading by 2020.

CEO Alison Brittain chose to focus on Germany, commenting that there were opportunities driven by the “fragmented competitor set and a high percentage of independents which are in gradual decline”. In its prospectus, the company says it’s looking for long-term development partners in Germany, development plots, turnkey properties, conversions or mixed-use.

While Whitbread is happy to stick with traditional ownership, growth in Germany has a variety of interested parties. The growth of budget hotels has seen franchises start to creep into the country as operators look for growth, which could change its attractiveness to investors.