Germany’s institutional hotel market tops €50b mark

The market value of investable hotels in Germany increased by 8.3% last year to €51b, according to research published this month by fund manager Union Investment and consultancy Bulwiengesa.

The hike in value is largely attributable to new constructions, both for hotels and B&Bs, which resulted in a net increase in beds of 0.7%.

‘The general conditions for the domestic hotel market are almost ideal’, said Dierk Freitag, divisional manager and partner at Bulwiengesa. ‘The German hospitality industry experienced growth in the number of national and international tourists for the seventh year in a row in 2016.’

Union Investment and Bulwiengesa highlighted a portfolio of around 376,600 hotel rooms spread across small, medium and large cities in Germany as an investable supply. In 2016, the average value was calculated at around €135,600 per room, up from €130,500 in 2015.

This year, hotel rates in Germany’s Top 8 cities – Berlin, Stuttgart, Hamburg, Munich, Frankfurt, Cologne, Dusseldorf and Dresden – are expected to increase on average by 6% to €120 a night, according to Engel & Völkers Hotel Consulting’s (EVHC) ‘Sentiment Report Hotelmarkt Deutschland 2017’, which was published earlier this year.

There were €1.79b of hotels transacted in Germany in the first half of the year, down 9% on the same period last year, according to CBRE. However, unlike last year, single asset sales dominate the market, with 68 deals in the first half, up almost 10% on the same period last year. Given the proliferation of single asset sales, the typical deal size has shrunk 17% y-o-y to €26.3m, according to CBRE.

‘As a result of the lack of big portfolios, we have witnessed a slight drop in deal sizes and in transaction volumes in general,’ said Olivia Kaussen, head of hotels, Germany, at CBRE. ‘However, the increase in the number of deals shows that investor interest in German hotels is not abating,’ she added.

Last month (June), Singapore's CDL Hospitality Trusts (CDLHT) acquired the 337-room Pullman Hotel in Munich, as well as its office and retail components, for €98m. The deal marked CDLHT's first acquisition in continental Europe The accretive deal has a net property income yield of 5.6% for the 2016 financial year. The purchase is being fully funded with debt financing, according to those who track the market.

Portfolio sales may be thinner on the ground but they haven’t disappeared completely. In May, German budget hotel chain Motel One Group sold two hotels near Berlin’s main station at Invalidenstraße 54 and in Nuremberg-Plärrer at Steinbühler Straße 13 to LHI Leasing via a sale-and -leaseback deal for €77m.The Motel One Group had previously entered into other sale-and-leasebacks in Berlin and Munich with LHI Leasing.

Munich accounted for 25% of the deal volume, or €454m, in the first half, according to CBRE and Bulwiengesa. Berlin came in a close second at €303m.

Institutional investors accounted for 29 deals in the period, or €1.2b in deals, followed by hotel operators with 8 deals, property groups (6), private buyers (5) and private equity groups/REITs (3), according to JLL.

Despite the slight drop in deal volume in the first half, it is still possible that last year’s deal volume can be beaten, according to Stefan Giesemann, senior vice president of hotels & hospitality at JLL: ‘It’s perfectly possible that last year’s record deal volume will be surpassed,’ he said. ‘After all, the framework hasn’t changed: the economy is doing well, financial markets are liquid and investment pressure is strong. Tourism is on the up and is pushing up hotel operating figures.’

Hotel transactions in Germany hit a new record high in 2016 at €5.2b, according to CBRE, which corresponds to around 10.2% of the calculated total market, up from 9.3% in the previous year.

‘The volume of transactions is growing even faster than the market. This indicates that the hotel asset class is becoming increasingly popular amongst investors,’ said Martin Schaller, head of hospitality asset management at Union Investment Real Estate.

And the market isn’t showing any sign of losing its mojo any time soon, according to Giesemann at JLL: ‘There is no sign of the market cooling off,’ he said. ‘Quite the opposite, in fact. A number of new funds have been launched to invest in hotels...hotel returns are still higher than for other asset classes,’ he added.