The City Scene: Berlin Market Update

Berlin City Scene

In the first of IHIF's and JLL's look at European markets, we put Berlin, host city of the International Hotel Investment Forum, March 7-9, under the microscope. Stay tuned for future looks at Europe's top hospitality markets, including London and Madrid.

Berlin is Germany’s most popular city destination, and one of the most frequented metropolises in Europe. Over the past decade, Berlin has witness considerable growth in demand and is a leading destination for both leisure and MICE travelers, ensuring only limited seasonal fluctuations throughout the year. The city has also become a preferred destination for start-up companies in recent years, further strengthening corporate demand and international appeal.

In 2015, the city reported some of the strongest hotel performance in Germany. Although a weaker trade fair year, with the absence of two blockbuster fairs (ILA Berlin Air Show and InnoTrans), strong corporate demand and the Champions League Final in June supported robust RevPAR growth in the city.

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Supply Look
There are currently around 784 accommodation establishments in Berlin, with approximately 141,000 beds, but this number has been falling recently as hotels are converted into refugee homes. The majority of supply is positioned in the three- and four-star sector, accounting for around 70 percent of total supply. While the share of five-star hotels is comparatively high, the share of budget hotels remains limited. Looking ahead, there are currently around 24 hotels (5,000 rooms) under construction and due to enter the market by 2017, with most of the development activity based around Alexanderplatz.

Institutional Attraction
Strong tourism demand and robust market fundamentals have boosted investor interest in Berlin, especially as the pace of supply growth has started to slow. In 2015, Berlin witnessed strong investment activity with 14 single asset transactions, totaling €483 million—13 percent higher than 2014. The dominant buyer group, closing six of these deals, were institutional investors.

The most notable sale was the 557-room andel’s Hotel Berlin by developers Warimpex & UBM Developers to Union Investment. Other deals included the acquisition of the Courtyard Berlin City Center by IDEAL Versicherung and the sale of the Meliá Berlin from a Middle Eastern high-net-worth individual to Union Investment. The sale of The Mandala Hotel in October to a private equity investor from the US represented the only deal in the five-star segment last year. Additionally, eight hotels with a transaction volume of €382 million were sold as part of portfolio transactions. The Park Inn Alexanderplatz and the Westin Berlin (both part of the Interhotel Portfolio) changed hands from Blackstone to a joint venture of Brookfield and Starwood Capital in September.

 

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The Last Word
Ursula Kriegl, Head of Hotels & Hospitality in Germany, JLL commented: “In the recent past, Berlin has evolved as Germany’s undisputed tourist powerhouse with overnight growth clearly above most other major German destinations. However, the increasing importance of Berlin as a business destination, coupled with major infrastructural developments, is expected to fuel growth going forward.

“The slowing supply pipeline should help hoteliers benefit from positive demand patterns and increase average rates, which remain below other leading European cities. Having said this, the repeated postponement of the opening of the new airport does not reflect favorably on the city. Due to the temporary closure of the ICC, congress tourism may also be more subdued for the next few years.

“Like other cities across Europe, the local tourism market is exposed to global risks: the volatile economic environment in China, the ongoing fear of terrorist attacks and the current refugee crisis. However, supported by Germany‘s stable economic environment, positive hotel market development and the availability of good products, investor and operator interest in Berlin is expected to remain strong. International operators and investors keen on getting a foothold in the German market will continue to show considerable interest in the capital city.”

For more information on hotel investment markets across EMEA, visit www.jll.eu/hotels-intelligence-hub

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