German hotel sector shows 6.5% increase in RevPar

More good news for the German hotel sector, with a new report highlighting how investors and developers are increasingly targeting opportunistic acquisition in German B-cities as well as in the six largest cities. There is also strong evidence of a surge in Asian interest in investing in the sector.

Christie & Co, the hotels and hospitality consultancy, have published a new analysis of six major German cities, based on data compiled by STR Global. The study shows strong income growth across the sector, with average revenue per available room (RevPAR) increasing by 6.5% amid rising occupancy.

The trend is seen continuing with several thousand new rooms coming onto the market over the next three years. Last year 120 new hotels were opened in Germany, with 193 more opening their doors in 2016, bringing an extra 23,300 rooms

The study also shows that transaction and development activity in recent months indicated investors and developers were increasingly targeting opportunistic acquisitions in B cities as well as A-city assets.

Ingo Gürges, head of transactions at Christie & Co Germany, said: "This positive trend has not gone unnoticed by hotel investors who consider hotels increasingly as a serious asset class, not least due to the availability of leasehold assets in the market.

"As the report suggests, investors are focusing strongly on business hotels due to Germany’s status as the key economic powerhouse within Europe. Along with its particularly strong trade fair and conference market, resort properties are of interest in both established leisure destinations and within economically robust micro locations.

"Notably, investors and developers are most interested in hotels in the budget and four-star segments, with a selective smaller percentage of overall activity taking place in the five-star luxury market."

The top performer in the sector was Cologne, with RevPAR growth of 15.6% to €80, building on a five-year average of 4.9%. Berlin also performed strongly, recording RevPAR increase of 8.4% despite strong supply of new rooms coming on to the market.

Munich had the highest RevPAR at €102, an increase of 4.6% over the year, and occupancy of 79%, while Frankfurt also saw strong growth of 8.8% to €88. Hamburg recorded more stable growth of 2.2% to €85 as its occupancy rate slipped slightly to 78%.

Düsseldorf, where 70% of reservations are made by corporate customers, was the only big city to post negative figures, with occupancy falling to 68% and RevPAR down by 1.4% to €75. But Christie’s said this is likely to change as a number of major trade fairs should boost visitor figures.

Meanwhile, a report by Berlin-based rating agency Scope shows that Asia's interest in the European hotel sector has risen strongly in line with the higher customer demand for overnight stays. Scope assigned ratings to hotel properties worth around €4bn in Europe last year.

In its report Scope said: “Hotels are no longer a niche investment; they have become an established asset class. Demand is bolstered by the spread of hotel chains to Europe, particularly from Asia, and the growing segment of budget hotels. As a result, higher interest in hotel real estate investment has run into the greater need for properties among hotel operators – a fundamentally positive trend for investments in hotel real estate.”

Scope point out that with the consolidation in the industry and a focus on larger lot sizes, operators are gaining strength as investors have to increasingly take on more operational risk – such as by managing hotel properties themselves – and are looking for more peripheral locations to get attractive yields, as the Christies report also suggests.