Hotel investors take risks in Germany


According to the latest report from commercial real estate company CBRE, Germany had its most active first quarter since records began for hotel investment volumes. 

The company said that demand for prime locations in the country sparked a rise in forward purchasing of hotel projects as investors started to take risks in this safe haven.

Germany saw a total of €1.15 billion transacted in the first quarter, up 55 percent on the year, representing an increase of 55 percent year-on-year, with notable deals including the four-star Arcotel John F. Berlin that formed part of the “Quartier am Auswärtigen Amt” mixed-use development. Of the deals transacted, 28 percent were forward-purchased hotel projects, accounting for around €318 million of the total hotel transaction volume, against 50 percent (approximately €365 million) in the same period as last year. Although the share decreased the absolute transaction volume remained almost the same.

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Overall, European hotel investment activity in Q1 2017 totaled €3.82 billion, down 14 percent year-on-year. 

“The German market sees an increasing appetite for the forward purchase of hotel projects, indicating that investors are increasingly willing to take the risk on projects in order to secure prime locations in advance,” Armin Bruckmeier, head of investment properties Germany & CEE, CBRE Hotels, Germany, said.

The Safe Haven

Bruckmeier said that this was because of “a lack of existing projects in the market. If you look at 2016, 10 percent of all commercial transactions in Germany were in the hotel sector. It is very popular. This might change if the cycle ends, but in 2017 and 2018 we are continuing to see a high demand for future projects. 

“The buyers of forward deals are typically German institutional funds who need leases. They cannot operate hotels, even if they wanted to, by law. They are long-term investors and the only advantage to them of forward purchasing is that they can secure the investment at an early point, not so they can exit once it is completed. They are looking to hold for a minimum of 10 years.

“Germany is seen as a safe haven and that has been a positive thing, but on the other hand, it is putting pressure on yields. Our in-house prime yield was 4.5 percent in the first quarter and this is likely to be 4.25 percent in the second quarter.”

The German market has evolved in recent years. According to the European Hotels & Chains Report 2017 from Horwarth HTL, the country had 1,944 chain hotels in 2016, marking 9.7 percent chain penetration in terms of number of hotels, 35.5 percent as measured by rooms, with 180 brands, of which 73 were domestic and 107 international. AccorHotels led with 357 hotels, of which its Mercure brand had the most rooms with 14,885.

“The German hotel market used to be dominated by independently-operated hotels, but the boom-ing tourism market of the last few decades has heavily increased the importance of chain hotels,” Christian Ott-Sessay, managing director, Horwath HTL, said. “This census, the first of its kind in Germany, reveals a powerful German chain hotel market with a diverse range of locations and a variety of chain groups and brands. 

“Incredibly, Germany is now home to almost 180 different brands. Around 35.5 percent of the total hotel room supply is provided by chains, both domestic and international. This market sector is still growing, especially in top city destinations, with many projects in the pipeline.”

“If you look at the key markets, investors are looking for branded corporate hotels because investors are looking for a good covenant to deliver their long-term fixed income,” Bruckmeier added. “The model they are looking for also depends on the investor profile. It is well balanced between national and international money—national tends to go with leases, while international can be more flexible.”


CBRE’s study came as HotStats reported that Berlin was one of the cities in Europe most affected by falling profit levels, which have contrasted with other—rising—KPIs. The company said that rooms cost of sales (a HotStats measure of travel agent’s commissions, reservation fees, GDS fees, third party fees and internet booking fees) had increased by 320 percent in the period from 2009 to 2016, compared to a RevPAR increase of 36.6 percent during the same period. As a result, the company said, profit conversion in the rooms department at hotels in Berlin had gone backwards over the last 10 years.

“There is a particular challenge for hotel owners and operators alike who seek ways to enhance the value of the properties they own or manage,” Pablo Alonso, HotStats’ CEO, said. “With further compression in yields unlikely across key European hotel markets, it is essential that value is driven by profit growth.”

In other words—the safe haven is coming under pressure.

Katherine Doggrell is an editor at Hotel Analyst, the U.K.-based news analysis service for hotel investors.