Germany's hotel market saw a 6-percent boost in 2017 to €52.6 billion, despite the competition from Airbnb, according to a report from Union Investment and Bulwiengesa.
The German hotel market has doubled in the past 10 years. The branded hotel segment in the country along with increased supply contributed to the market growth. The number of hotel rooms has grown 16.6 percent in the last 10 years while strong performance in the hotel chain sector led to the boost in market value. Significant increases in occupancy and room rates pushed RevPAR at German hotels to reach €66.70, up from the €49.90 recorded in 2016.
“Overnight stays in Germany, which have risen for eight years in a row, are the main factor behind this development,” said Dierk Freitag, departmental head and partner at Bulwiengesa, in a statement. “Despite competition from Airbnb, the institutional hotel market continues to grow steadily. Alongside the traditional hotel market, newer hotel concepts are also part of this growth story. This includes apartment hotels, which are becoming increasingly investable and therefore also feature in our market value model.”
Union Investment and Bulwiengesa stated that there are close to 375,200 guestrooms across small, medium and large towns and cities in Germany's hotel market. Each room was valued on average at about €140,000 last year, compared to the €135,600 recorded in 2016.
Decline in transaction volume
Transaction volume fell from the recorded €5.2 billion in 2016 to approximately €4.2 billion in 2017, despite the growth in market size. In 2016, 10.2 percent of properties were sold. However, the level of transactions dropped down to eight percent in 2017.
“Property holders’ willingness to divest themselves of hotel assets has fallen significantly compared to the prior year. The decrease in product availability and rise in prices are reflected in declining transaction figures. Hotels nonetheless remain a highly liquid asset class capable of delivering above-average returns,” said Martin Schaller, head of Asset Management Hospitality at Union Investment Real Estate, in a statement. "During this market phase, a sophisticated, long-term investment strategy is required. Options here include forward deals and targeted improvements to existing properties that boost their value, assuming they are to be held in the portfolio for an extended period." Union Investment predicts the number of individual transactions in Germany will continue to drop in the remainder of the year.
Germany’s tertiary locations, which are becoming more attractive to operators and developers, are also growing in value. “The branded hotel segment goes wherever there are high–and growing–tourist figures and correspondingly good prospects for running a successful hotel,” said Freitag. “Several small and medium-sized towns offer interesting catch-up potential here.”
Apartment hotels as drivers of growth
Union Investment and Bulwiengesa expect Germany's institutional hotel market will grow approximately five percent, corresponding to the prior-year level. “Many existing properties are getting rather long in the tooth, which is driving the development of new hotels across all segments and putting huge pressure on privately run hotels. Real estate for temporary living, such as apartment hotels, is likely to profit disproportionately from the continuing strong growth in 2018,” said Schaller.