Germany attracts investors for budget hotels

Germany is an evergreen destination for both investors and developers in the hospitality industry, with global companies looking to cash in on one of Europe's strongest economies.

EasyHotel recently signed a franchise agreement for a site in Bernkastel-Kues, a state-recognized health resort 20 minutes from Frankfurt Hahn Airport that attracts an average 2.7 million guest-nights per year.

The hotel will add a further 100 rooms to the budget brand’s estate by the end of December 2017, and brings the total number of rooms under development by EasyHotel franchisees to 737.

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“We continue to believe there is significant opportunity for further franchise hotels expansion in Europe and the Middle East, enabling us to leverage our brand presence without direct capital investment,” EasyHotel CEO Guy Parsons said.

Just weeks ago, Foncière des Régions signed a €125-million sale-and-leaseback deal with NH Hotels Group. The five assets will be leased by NH for 20 years under a variable lease. The deal on hotels in Düsseldorf, Frankfurt, Nuremberg, Oberhausen and Stuttgart, is expected to close in 2017.

At the end of the first half of the year, FdR had an €18.3-billion portfolio, of which 14 percent was made up of hotels in Europe—the remainder being offices and residential. In the hotels segment, the half-year was marked by a further increase in the group's stake in the subsidiary Foncière des Murs, taking it from 43.1 percent to 49.6 percent.

The group also strengthened its hotel exposure in Europe with secured acquisitions totaling €1.1 billion, mainly in Berlin, Dresden and Leipzig, illustrating its faith in Germany.

Branded Budget Hotels in Germany

According to PKF, branded budget hotels make up around 13 percent of the overall hotel market (hotels and bed-and-breakfast hotels) in Germany and account for 24 percent of beds. Moreover, a comparison to the PKF Budget Report from 2010 showed that a high proportion of budget brands increased the number of their hotels, with average growth at around 32 percent.

“As the budget hotels show the highest growth rates in the hotel industry in Germany and as international hotel companies are not willing to conclude lease contracts due to accounting reasons, there are quite a lot of new franchises entering the market,” Ulrike Schüler. managing partner, PKF hotel expert, said. “Budget hotels are becoming increasingly attractive among investors’ investments. In recent years, hotel properties have undergone a positive change of image and are today recognized as an asset class in the category of specialized operator-run properties.

“This can be attributed to factors including growing professionalization of market players, but also to innovations in the industry. One of these is the rise of budget hotels in Germany. Budget hotels provide relief with advantages on the cost side such as area efficiency through smaller rooms, no full-service restaurant or function rooms, which can increase profitability altogether.”

Following the terrorist attacks in Paris at the end of 2015 and in Brussels in March 2016, rental income was down 2.1 percent like-for-like due to the drop in AccorHotels rents (-4.8 percent, variable according to the hotels' revenue). In Germany, hotel rent was up by 6.8 percent.

RELATED: Can terror attacks derail hotel investment?

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