The German Hotel Market Continues it’s Steady 10-year Growth Path

Main Photo: The Hotel de Rome, a significant deal from 2019

Date: March 2020

Locations: Germany

Name: Engel & Volkers Hotel Market Report in cooperation with with HQ revenue and Fairmas.

No. of Keys: Just under 4m

What Did They Say: Transaction volume in 2019 rose by 22.5% to €4.9bn, according to the latest Hotel Market Report published by Engel & Volkers Hotel Consulting in cooperation with with HQ revenue and Fairmas.

Engel & Völkers Hotel Consulting put the rise in 2019 to an increase in portfolio transactions as well as the sale of new project developments. The peak yield in Germany’s Top 7 cities dropped in the period to 3.8% from 4% the year before.

More than 50,000 new hotel rooms are currently in the development pipeline, with many outside the biggest cities, making Germany the biggest market in Europe. Germany’s attraction as a destination is growing, with the number of overnight hotel stay rising in 2019 to 496 million from 478 million the previous year. These were catered for by 3.95m available beds, up from 3.88m beds, while the key metric average RevPAR (revenue per available room) rose from €73.20 to €73,90.

According to Andreas Ewald, the CEO of Engel & Völkers Hotel Consulting, “The mood in the German hotel market remains positive. Germany is much in demand as a travel destination and economic forecasts are for stability – let’s just hope that the Coronavirus doesn’t darken these prospects too much. Tourism as a global industry can be hit badly by these crises. However, we do detect a certain sideways movement in hotel performance in most of the top cities, where supply is now exceeding demand, despite rising numbers of overnight stays. Berlin and Cologne are exceptions here.”

Berlin saw its number of overnight stays rise by 4% to 34.2 million, and it remains at the top of the occupancy league with nearly 80% occupancy. There are currently 154,000 available hotel beds in the city, with little excess supply. The RevPAR rose 18% to a record €80.00 in the city, giving it a place in the lower mid-table of the bigger German cities. The biggest hotel deal in Berlin last year was the sale of the Hotel de Rome to Singapore’s GIC sovereign fund.

Hamburg had 15.4m overnight stays, a rise of 6.1%, giving it third place in Germany. For the slecond year running new supply rose faster than demand. About 16,000 new beds are currently in the project pipeline, which will need to be justified by a further 18.5m overnight stays by 2022 – a challenge, given lower occupancy and lower rack rates. The current RevPAR is €89.00 putting Hamburg in third place behind Munich and Cologne. “2019 was a weak year for the Hamburg hotel investment market, with a total volume of €180m. One standout deal with the forward deal of the “niu Bricks” development in Hamburg Eppendorf. Given the well-filled pipeline and the stable property market, we’re expecting a rise in transactions this year”, said Ewald.

In Munich, Germany’s most expensive city, and second-most visited, overnight stays rose in 2019 to 18.2m, a rise of 6.8%. Rising tourist numbers and the highest room rates in Germany have led to countless new developments in areas such as Schwabing, around the Ostbahnhof or the Munich Trade Fair. The last five years, however, have seen supply overtake demand with performance moving in a sideways direction. Average room occupancy sank by 4%, while Germany’s highest average RevPar (at €96.00) fell 3% below its 2014 levels. “Munich is stagnating, in the best meaning of the word, at a high level”, according to Matthias Hautli, likewise a director of Engel & Völkers Consulting. “Since 2014 the relative growth in supply has overtaken demand, although investment is still attractive given the high RevPars.

Frankfurt am Main was able to extend its 10-year growth record, seeing overnight stays rising 6.3% to 10.8m, placing the city fourth behind Berlin, Munich and Hamburg. Along with rising demand, the city’s bed capacity has soared 36% since 2014, with 2,000 new beds coming in 2019 alone. The relative growth in supply has been outstripping demand for several years, while the occupancy rate sank last year by 2%, resulting in a RevPAR of €74.00. Frankfurt has the lowest occupancy rate of the Big 7 cities, with 2019 seeing yet again a sub-70% level of room occupancy.

“Transaction volume in 2019 was €770m, about 45% up on the previous year, due largely to hotel deals in the area of Frankfurt Airport. Frankfurt remains an interesting investment market but does need fresh demand generators to boost its occupancy levels”, said Ewald

Düsseldorf has strong and growing tourist demand since 2014, but 2019 did not contribute much to that growth. Overnight stays rose 2.2% to 5.0m, putting Düsseldorf in sixth place among the Big 7. Net room rates rose 1.7% to 112m, RevPAR increased 1.5% to €78.00. The city, the capital of North Rhine Westphalia, has 28,000 hotel beds, set to rise by a further 11,000 beds by 2022, of which nearly all are in the budget to mid-scale category. This sector of the market is likely to see hefty competition. According to Hautli, “11,000 beds in the pipeline corresponds to a further 6.9m overnight stays by 2022. It remains to be seen whether this can be justified.”

Further south on the Rhine, Cologne booked a record year with 8.2m overnight stays, fuelled by higher domestic and foreign tourist demand as well as business travel. Supply of beds increased only marginally by 5%, underlining the sustainability of the city’s hotel market. RevPAR has increased here the most of all German cities over the past five years, rising 28% to €90.00. Ewald said, “Cologne was able to increase its transaction volume over the previous year by 23% to €390m. The significant rise in overnight stays coupled with a balanced demand structure, along with a modest development pipeline, serve to provide very sustainable perspective for the Cologne hotel market.”

Finally, Stuttgart was also able to prolong its extended run of rising numbers of overnight stays, up 4.5% on the previous year. The capital of prosperous Baden-Württemberg is experiencing an above-average pipeline, with a further 4,000 beds due to come on stream by 2022, an increase of 18%, with much of this capacity in the proximity of Stuttgart Airport. The average net room rate fell back to €108.00. Ewald commented, “Transaction volumes fell last year in Stuttgart by about 20% to €180m. Much of the future success in the Stuttgart market will depend on how the number of overnight stays develop. But given the numerous projects in development we’re expecting transaction volume for this year to remain pretty static.”

THPT Comment: Obviously this report was pre-coronavirus, as most reports from THPT are/will be…so we have assume that life will return to normal by the end of 2020. Good to see Germany remaining so strong.

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