Demand for assets in Europe’s safe haven of Germany have pushed investors out of primary locations to the country’s coastal regions.
Demand from Scandinavian guests, drawn to cheaper rates, has meant an increase in transactions led by the institutional investors.
Most-recently, the German branch of French fund LFPI purchased the 81-guestroom Hotel Excelsior in Lübeck for an undisclosed fee.
“This transaction underlines the current appeal of hotel markets in German coastal towns, which attract both leisure and business travelers,” Stephan Brüning, senior consultant, investment & letting, at Christie & Co. in Berlin, said. “Lübeck in particular has been enjoying rising figures for overnight stays for some years, with demand increasing three times as rapidly as the supply of beds. Given the shortage of supply in A locations, firmly established hotel businesses like the Hotel Excelsior in Lübeck are becoming popular among investors.”
Earlier this year Internos Global Investors acquired the Steigenberger Hotel in Kiel, also in Northern Germany, for €16.7 million from K/S Schlossgarten Kiel, a Danish investor group. Jochen Schäfer-Surén, partner in charge of managing Internos’s hotel & leisure division and hotel & real estate fund, said that the deal saw the group invest “into markets with more growth potential and again in high quality hotels which combine the potential to add value with good running returns.”
The German Market
“There is currently a lack of sites for development in top locations in general,” Sebastian Nowak, senior consultant investment & letting, Christie & Co., told HOTEL MANAGEMENT about the German hotel market, “and hotels are in fierce competition with other asset classes for such sought-after destinations.
“That said, the supply of attractive investment opportunities is becoming ever more limited in the major cities. As a result, B and C-locations are coming under more intense scrutiny by investors. Given the lack of available data, however, it is hard to predict the best destinations in which to invest. The determining factors are diversified demand generators and a positive economic development.
“We are seeing particularly strong demand from German and international investors in Lübeck und Flensburg, where we are currently engaged in projects. These cities are definitely worth a closer inspection, as the economic data and population figures have been on the up for some year.”
For those investors looking to the seaside, Nowak pointed out that the rules for investing in Germany still applied. “With the exception of the luxury segment, leases are still the most frequent operator model in Germany,” there is, however, a place for flexible operating, “particularly among U.S. chains and large corporations who are unable to sign lease agreements due to tax reasons, the use of white-label operators is quite common”.
Nowak also pointed to markets such as Flensburg, in the north of the country near the border with Denmark, where visitors from overseas accounted for 41 percent of overnight stays, with the majority of travelers coming from Scandinavia.
While the locations may be shifting, the deals in Kiel and Lübeck illustrate that the institutions are still driving transactions in the country for two main reasons, Nowak said. “Firstly, they can generate higher yields than with other asset classes and secondly, with the hotel investment market getting more transparent and the players more educated, more institutions dare to buy hotels.”
As Germany remains a target, who dares, wins.
Katherine Doggrell is an editor at Hotel Analyst, the U.K.-based news analysis service for hotel investors.