Hotel Sector
Transaction volume in hotels fell in 2017 over the previous year’s recorded €5.2bn, when 10.2% of properties were sold. In 2017 this figure dropped to 8%, and Löcher’s colleague Martin Schaller, Union Investment’s head of Asset Management Hospitality, predicts the number of transactions will continue to drop.
Germany’s investment-grade hotel market is expected to hit a new high of €56bn by the end of this year, according to Dierk Freitag, a partner at consultancy Bulwiengesa, in a sign of just how rampant growth in the sector has become.
Germany’s investment-grade hotel market grew by around 6% last year to €52.6bn, or double what it was 10 years ago, according to a recent report by Union Investment: ‘We expect a growth rate of 5% in capital value this year,’ Freitag told REFIRE. ‘This means that by the end of 2018, the investable hotel market volume in Germany will be around €56b.’
There were around €1.5bn in hotel deals in Germany in the first quarter, including mixed-used schemes, which was broadly the same year-on-year, according to Andreas Erben, managing director of Colliers International Hotel. Nonetheless, hotel deals fell to €4.2bn in Germany last year, down from €5.1bn a year earlier, a drop that Andreas Löcher, head of hospitality investment management at Union Investment, attributes to ‘many hotel owners currently not being willing to sell’.
Room rates are also on the up, rising on average to €140 per night last year, up from €135 in 2016 and demand remains buoyant, according to Löcher. ‘In general, demand increase has been exceeding supply increase in all major cities,’ he told REFIRE. ‘Hence, especially in the big cities – with more than 500,000 inhabitants - the ADR is expected continue to grow. In strong secondary cities such as Heidelberg, Bremen and Hannover, ADRs are also expected to increase, partly due to the lack of branded hotels.’
In a further sign that the market is booming, overnight stays have risen for eight consecutive years, Löcher said. ‘And all signs point to continued growth,’ he added. ‘Overnights in Munich grew by 15% in the first three months of 2018. In Hamburg, they rose by 8%. Germany is becoming increasingly popular abroad - both as a business destination and as a holiday one. City tourism is growing more and more and guests place more and more value on a good accommodation. All this will benefit the hotel market in Germany.’
However, the hotel sector is facing fierce competition from its residential counterpart, Erben told REFIRE. ‘Residential developments can bring in 20% more than a hotel one,’ he explained. ‘That’s why we see quite a lot of developments advertised as hotels upfront which end up being converted into apartments instead. We’re seeing this more and more.’
Around €11.8bn was poured into German commercial real estate in the first quarter of 2018, according to Colliers International Deutschland. This result, which is well above the €10bn mark, is in line with last year’s start to the year, but falling short of 2017’s 10-year record high by 3%. This reflects an increase of 61% compared to the 10-year first quarter.
Secondary cities usurping ‘Top 5’
Secondary cities have usurped the ‘Top 5’ to dominate Germany’s hotel market this year: in the first quarter, the ‘Top 5’ cities accounted for just 26% of deals, or €175m, down from 53% a year earlier, according to CBRE.
‘We’re seeing a number of investors from Russia, Turkey, Italy and Spain looking at hotels,’ Erben said. ‘They’re not just looking at the ‘Top 5’ but also at cities such as Augsburg, Darmstadt and Hannover, which offer interesting investment opportunities.’
This year, single deals are dominating the market: 27 of the 32 transactions (84%) in the first quarter were single assets, down from 64% a year ago.As a result, the average investment volume per deal has fallen by 25% to just under €21m. Honestis, a Cologne-based financial holding, took over the majority in the holding company of Herrenkrug Parkhotel, a first-class hotel with 147 rooms in Magdeburg, for an undisclosed sum earlier this year. Hotel operator, Dorint, a unit of Honestis, will operate the property as part of the deal.
Cologne accounted for the highest transaction volume in the first quarter at almost €147m, a leap of 195% year-on-year, including the sale of the Maritim Hotel. Hamburg took the number two spot with a transaction volume of €104m, which marks, nevertheless, a decline of 54% y-on y. Along with the sale of the Premier Inn development, a former administrative building belonging to Deutsche Telecom on the Kronsaalweg was also sold by Hamburg-based developer Sicon to Catella Residential Investment Management for €43.5m. It will be refitted to accommodate 347 long-stay apartments.
Still, some investors chasing higher yields will invariably look elsewhere, according to Olivia Kaussen, head of CBRE hotels Germany. ‘The opportunistic and yield-driven international investors are now looking in other European regions such as Eastern and Southern Europe for better yields,’ she said. (ssk)
