Cheap debt fuels hotel investment volumes in Germany

Few countries in Europe are as hot right now for hotel investment than Germany. That's according to HVS, which recently released a new report: "Germany – The Investor’s Darling?"

With numbers like these, maybe the question mark should be replaced by a period.

Year-to-July 2014 data show hotel investment volumes have risen over 100 percent to a record level of over €1.5 billion, compared with approximately €800 million over the same period last year.

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On average, German hotels have recorded revenue per available room growth of 2.5 percent in the year-to-July compared with the same period in 2013, driven primarily by occupancy.

These numbers show how the German hotel market is one of the most sought after for investors, driven by low interest rates and the fact that debt liquidity has returned to pre-crisis levels.

Following the crisis years of 2008 and 2009, 2010 saw a general recovery of the sector with German markets even exceeding their 2007 peak. Since then, RevPAR has continued to grow and investment has remained strong.

Major recent portfolio transactions include that of Accor, of which 67 of the 86 properties were in Germany. The total portfolio transacted for €722 million and was sold to Accor by two Moor Park funds, in a reverse of Accor’s sale-and-leaseback of substantially the same portfolio to Moor Park in 2007.

The sale of 11 German hotels, part of 18 European hotels, by Ivanhoe Cambridge for €425 million to a fund affiliated to  Apollo Global for €425 million, was another substantial deal for the sector.

“The hotel market has mirrored the wider commercial real estate market in that higher-yielding opportunities in secondary markets are becoming more sought after,” said report co-author Veronica Waldthausen, senior associate with HVS. “There are more transactions occurring in eastern Germany, with both Dresden and Leipzip on the radar. Budget hotels are also prime targets, as room yield growth forecasts in this sector remain strong and investment opportunities are plentiful.”

Within the country, hotels in Munich reportedly have the highest value across Germany, although growth has slowed somewhat over the past four years. The average room price of a hotel in Munich reached record levels at €269,000 in 2013, 15-percent higher than 2007 levels.

Frankfurt’s hotel values have the highest growth rate of those markets examined in the report, up 25% on pre-crisis levels to a 2013 average value of €212,000 per room. Hotels in Dusseldorf lie at €173,000, while those in Leipzig have grown by over 20% since 2007 to a new value of €130,000.

“More risk-enthusiastic investors, such as private equity funds, may even see the current climate in Germany as a perfect time to exit this market and begin to look for higher returns elsewhere in Europe,” added co-author Arlett Oehmichen, director, HVS London.

The report says that the outlook for the German hotel industry remains strong, with continued investor interest prompting the possibility that transaction volumes may exceed €2 billion in 2014, despite the lack of property on the market. Debt remains relatively cheap in Germany, which is encouraging investors and underpinning the property boom.

 

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