Adina on track to double German portfolio

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Australian apart-hotel operator Adina is on track to double its German portfolio by the end of 2019, its European director, Andrew Hunter, said.

‘We are developing around 900 rooms in Germany, which will all be completed by the end of 2019, thereby doubling the total number of rooms we had last year. Most of the hotels are in big cities but as each is a little different, we are now going into regional cities, such as Freiburg, as well.’

As part of its expansion drive, Adina is developing apart-hotels in Hamburg, Leipzig, Munich, Freiburg and Cologne. Its one-bedroom rooms are typically around 38 sqm, with two-to-three bedrooms offering up to 65 sqm.

‘There’s always going to be a need for traditional hotels but there is also space in the market for alternative options, such as ours,’ Hunter said. ‘Our prices are similar to those in 4-star hotels but you’re getting more space for your buck’.

And institutional investors are getting in on the act. As part of the TFE Hotels (Toga Far East Hotels) brand, Adina opened two new apartment hotels in Germany at the end of last year in Frankfurt and Nuremberg. Frankfurt’s ten-storey apart-hotel provides 181 apartments located 600 metres from the central station. The property was developed by GBI AG Berlin with funding by Deka Immobilien. In Nuremberg, Adina has opened a 137-suite apart-hotel in the historic city centre. The four-storey development is a conversion of a property previously occupied by Commerzbank. Developed by FREO Group, Adina sold the investment to Invesco Real Estate, the global real estate investment manager.

Deka Immobilien had been eyeing the apart-hotel sector for some time before acquiring an Adina hotel from GBI in Frankfurt before construction started in 2015, according to Dr. Malte-Marie Münchow, head of retail, hotels and logistics at Deka Immobilien.

‘It was the first apart-hotel that we bought and we paid €39m,’ he said. Deka had also looked at other Adina hotels in 2014 but Adina decided to hold them in the end instead of selling them. ‘Most project developers want to have their exit finalized before construction even starts, hence the opportunity to acquire hotels at the beginning of the project. This goes for all types of hotels, not just ‘extended stay’ ones,’ Münchow added.

Today, apart-hotels are well on their way to becoming mainstream. ‘A few years ago, most people hadn’t heard of apart-hotels,’ Hunter said. ‘But now, they are viewed as an institutional asset class. The extended-stay segment of the hotel market is an increasingly important one for developers and investors alike. Its growth in popularity with customers and residents is a reflection of the different ways people are now travelling, working and living. We see tremendous potential for the apart-hotel sector across Europe.’

Evolving consumer preferences, primarily amongst millennial business travellers, will be a key driver of demand for extended stay product, according to Savills. And although the European market remains fragmented, the acceleration in the rollout of extended stay concepts by a number of global hotel operators - including Accor’s Adagio brand, Irish group Staycity and Adina - reflects a growing awareness of the potential scale of extended stay demand in Europe.

‘Apart-hotels are now seen as part of the overall hotel market,’ said Marie Hickey, director of commercial research at Savills in London. ‘The main problem is that there is not much product to buy, which is why investors are starting to forward purchase developments because it’s the only way to get their hands on institutional grade stock.’

Deka plans to up its exposure to apart-hotels going forward, Münchow said. ‘The ‘extended stay’ concept is very interesting to us. It was practically unheard of in Germany four to five years ago but it has a real future. We will look at acquiring other 2-to-4 star hotels like this, both in Germany’s ‘Big 7’ and in other cities. We’re also interested in apart-hotels in the UK and in other continental European markets. The US is also on our radar. The only stipulation is that we won’t buy a hotel that already has a management contract in place.’

The top five cities ripe for apart-hotel expansion are Berlin, Amsterdam, Barcelona, Dublin and Stockholm, according to Savills. ‘While London is relatively more developed when it comes to apart-hotels, cities like Berlin and Amsterdam have good growth prospects, due to the nature of their employment markets. Germany also benefits from having several major cities in which to develop or invest,’ Hickey added.

Interestingly, the growth in apart-hotels is also partly due to the growing popularity of Airbnb, according to Hickey, who says it has made people more aware of alternative accommodation options: ‘You have the advantage of bigger rooms but with hotel services, such as daily cleaning. I think we’ll see operators expand more this year into gateway cities,’ she said.

Hunter agrees: ‘We’d like to enter the UK market and we’re looking at three-to-four possibilities there,’ he said. ‘We’d also like to grow our presence in Denmark, particularly in Copenhagen.’

TFE Hotels is a joint venture formed in 2013 between two hotel operators: Toga Group, Sydney and Far East Hospitality Holdings, Singapore.TFE Hotels is one of the largest hospitality management Platforms in Australasia operating more than 60 hotels and apart-hotels with more than 8,250 rooms across Australia, New Zealand, Germany and Denmark, employing over 1,500 staff. TFE Hotels manages hotels under multiple hospitality brands including Adina, Medina, Vibe, Travelodge and Rendezvous.