German hotel sector on track for bumper year

Two different reports – from Jones Lang LaSalle and from Colliers - on the state of the hotel investment market in Germany have crossed our desk in the last few weeks, and both point to the rude good health of the sector over the first three quarters of the year, despite a quiet-ish summer.

Focusing on the larger investment deals in the market, both brokers provide figures close enough to each other for consistency. Colliers identifies €992m of deals over the first nine months, while JLL puts the figure at €925m (such differences tend to be a function of ‘deal’ definition).

Roughly speaking, the market is about 70% ahead of where it was at this time last year after a very strong third quarter, largely thanks to a spate of individual deals and one significant portfolio transaction. 26 individual deals worth €535m and four portfolio deals for about €390m made up the sector totals. Foreign investors made up 49% of volume, higher than their 30% share of commercial investment volume as a whole. 23% of the deals were for hotels in the 5-star segment, 66% of the deals were for 3- and 4-star hotels and 10% were for 1- and 2-star hotels.

Head of hotels at Colliers, Andreas Erben, gave his perspectives for the full-year: “Although the second quarter was weak, the market bounced back strongly in the third quarter.  Deals valued at over a billion euros are in the pipeline. Although we’re not expecting all of these to be concluded this year, we think that – given our own likely volume of about €100m – the market as whole will exceed the €1.3bn mark for the year, and therefore be well ahead of last year.” The 10-year average in Germany is €1.1bn in hotel transactions yearly

Ursula Kriegl, head ofhotels and hospitality over at Jones Lang LaSalle, takes a similar view. “Movement over the last quarter shows the willingness of investors to put capital into the hotel sector. We’re optimistic about the full year, particularly if one of the big hotel portfolios in the pipeline does change hands in the next couple of months.”

A report by consultant Deloitte points to the growing significance of Chinese visitors for the health of the sector. Last year Chinese visitor numbers were up 20%, with Frankfurt being a major beneficiary. (We’ve reported in the past how a surprise winner in the tourism stakes has been the lovely city of Trier, hitherto somewhat of a tourism backwater.  Trier has the great good fortune of being the birthplace of none other than Karl Marx – and hey presto! There’s barely room to accommodate the Chinese tourist buses as they come to pay homage to the birthplace of the great man…)

A further useful report is the study by Treugast Investment, a hotel consultancy, on the performance and strategic direction of the 65 leading hotel companies in Germany. The study’s Most Wanted Investment Partner Award goes this year to budget chain B&B Hotels, while their overall investment ranking list is headed this year by Motel One, followed by Accor and Marriott. The positive returns enjoyed by the sector meant that 70% of the hotel groups followed by the consultants achieved Blue Chip status in the consultants’ ratings. This in turn is leading the hotel operators to invest more of their own equity in their assets. All of which doubtless has been helping to give the sector the boost that the property brokers are currently experiencing.

To put all this in a European context: Research figures from broker BNP Paribas Real Estate for the first six months of the year 2013show that the five leading tourist markets in Europe saw hotel investments rising by 54% over last year to €4.5bn. The emphasis is clearly on premium hotels.

The UK, Europe’s dominant market, saw investment in the period rise 23% to €1.9bn, with London not surprisingly outperforming. France saw investment volume rise 119% to €1.3bn, largely influenced by the sale of a handful of trophy assets such as the Mandarin Oriental and a portfolio with four Concorde luxury hotels, as well as several acquisitions by sovereign funds, particularly Qatari interests.

Germany rose in the twelve months since July 2012 by 121% to €800m, primarily due to the major sale of the Queens Moat Hotels portfolio, of 20 hotels for €300m in this year’s first quarter. Italy is on the road to recovery after a summer which saw several prestige hotels change hands, while Spain is likely to see 2013 ending with a reversal in its five-year downward spiral for the first time.