Earlier this month, Radisson Hotel Group established a strategic joint venture for operating hotels in Austria, Germany and Switzerland, and will look to pursue leases.
The group told our IHIF newsletter Germany has evolved into a “less homogenous and more heterogeneous” market, with a number of locations that could support leases.
The initiative comes just over 18 months after Radisson Hotel Group announced plans to take on up to €400 million of lease risk as it looked to expand in Europe, driven in part by the increased demand for leases from institutional investors targeting the hotel sector.
Elie Younes, EVP/chief development officer, Radisson Hotel Group, told our IHIF newsletter, “We asked ourselves how we can do more leases as part of our five-year plan. The German market is becoming increasingly diverse and it has become an economy of economies; there are 20 places to confidently do a lease and we are responding to the evolution of these secondary markets.”
The company will focus growth around its Radisson and Radisson Red brands.
Younes described Radisson as “the most relevant brand to the market. Germany is a business- [and] efficiency-driven market. Efficient development costs and reasonable rates—you do not build luxury palaces there. Radisson is exactly what you need for €100-rate markets. It could deliver four-star results with three-star investments.
“Radisson Red is a brand which offers something new which Germany needs. Germany is less homogenous and more heterogeneous—Cologne, for example, is [quirkier]. Radisson Red is a good brand in destinations where there is more electricity.
“We aim to remain relevant to owners and investors and this new venture is a testament of our commitment. We look forward to a successful journey with our partners and to unlock value to various stakeholders through this venture," said Younes.
CBRE described the hotel market in Germany as “very dynamic” earlier this year, with a lack of product on the market restricting the investment volume and resulting in a further decline in yields in prime locations. Consequently, investors were increasingly buying in secondary and tertiary locations.
The hotel-transaction volume in the hotel-investment market in Germany stood at €1.64 billion in H1 2019, down 14 percent from the prior-year period.
Between June 2018 and June 2019, Germany ranked third among the European hotel markets in terms of transaction volume (€3.64 billion), only after the U.K. (€6.3 billion) and Spain (€4.3 billion), with investment in provincial Spain increasing by 75.5 percent due to transactions in leisure and resort markets.
CBRE reported 51 percent of the investors were international while the sellers tended to be German owners (67 percent). In first-half 2019 development sales accounted for 43 percent of the total hotel-investment market—a historic high. Domestic investors, in particular, liked to buy new, modern branded product with 20 to 25 years remaining on lease terms, with projects described as highly sought-after.