The Market Volume of German Hotels Will Fall By 10 % in 2020 – Recovery Expected From 2022 According to Union Investment & bulwiengesa

Main Photo: The Tower at Mailander Platz, a mixed-use residential and hotel project in Stuttgart

Date: May 2021

Location: Germany

Name: Union Investment and buwliengesa

No. of Keys: Union Investment have a portfolio of 19,500 hotel rooms, as well as retail, restaurants, office space and logistics.

and Who: bulwiengesa is one of the major, independent consulting companies in continental Europe. For almost 40 years they have supported their partners and clients in real estate related questions. They provide strategic advice and conduct bespoke surveys, analyses and valuations. Clients are, among others, real estate developers, contractors, institutional investors, banks, local communities and asset managers.

What Did They Say: After twelve years of continuous growth, the hotel market volume fell to €54.3 billion in 2020. The inventory value of all investment-relevant hotels in Germany calculated annually by Union Investment and bulwiengesa fell by around 10 percent in 2020, taking into account the last available data from the previous year. In the previous year, this still recorded growth of 6.3 percent.

The market volume is calculated from the number of hotel rooms in Germany that fall into the search profile of professional investors and the performance of the hotels, separated by location and hotel category.

The number of investment-relevant hotel rooms has been increasing significantly for years, including in 2020. In contrast, performance fell significantly in 2020 due to the pandemic. For the first time, a positive “volume effect” was offset by a negative “performance effect”. “As expected, three months of complete lockdown cast shadows on the market,” says Dierk Freitag, partner at bulwiengesa. “During the lockdown and corona months, the number of overnight stays fell very sharply in many places – with a clear impact on the performance of the hotels”.

The hotel year 2020 showed a lot of shadow, but also some light. Hotels in German holiday regions enjoyed good occupancy during the summer. Cities with traditionally high proportions of leisure tourists and low proportions of foreign visitors also got through the summer better than large trade fair cities such as Frankfurt or Hanover, where exhibitors and trade fair visitors usually ensure good occupancy rates, especially in spring and autumn.

Taking into account the 2020 volume and performance effects, the value of a hotel room in Germany was around €131,500 on average. That is around €17,400 less than in 2019. While the value in the luxury hotel industry fell by around 14 percent to an average of around €226,000 per room, the value in the budget / economy hotel industry remained almost unchanged at an average of around €107,300 per room constant.

Despite the current crisis, operators such as B&B and Whitbread have already indicated that they want to expand further in Germany. Other operators such as Hilton or Deutsche Hospitality, both known for their upscale and luxury hotels, are also focusing in Germany on expansion in the one to three star segment with brands such as Zleep or Motto by Hilton.

So far, more than three quarters of the total investment-relevant market volume has been in the eleven German cities with over 500,000 inhabitants, while the proportion in cities with less than 100,000 inhabitants is only around 15 percent. Due to the excellent tourist infrastructure and the high growth in demand in many cities, the arithmetical average value of a hotel room in major German cities is still around 43 percent higher than in smaller German cities.

“The distribution of the market volume could lead to changes in the future, as investors are increasingly looking for investments in excellent micro-locations outside of the big cities and some interesting projects have already been initiated here. The more stable domestic demand is also generally higher here. We can also imagine adding strong holiday hotels to our hotel portfolio.” said Andreas Loch, Head of Investment Management Hospitality at Union Investment.

The volume growth in the institutional hotel market is offset by a significantly lower transaction volume in 2020. While almost nine percent of the calculated market volume was traded in the previous year, the transaction volume in 2020 will be around two billion euros, which corresponds to a share of around four percent. “In view of the general conditions in the past year, this can be rated as a good result. We expect that the early movers among investors will send clearer signals towards summer to return to the stage, ”said Andreas Loch. As part of forward funding, Union Investment secured the “Tower on Mailänder Platz” project in Stuttgart at the end of April.

The market value model of Union Investment and bulwiengesa is based on data from companies, public statistics and hotel associations. It enables a comparative analysis of the institutional hotel market from 2007 to 2020.

THPT Comment: So no great surprise that 2020 was not a clever year, but interesting data presented here by Union Investment and bulwiengesa.

First Seen: Union Investment press release

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