Last quarter surge sees record volume in German hotel market

The German hotel investment market booked a record year for transactions, with volume rising from €4.9bn to nearly €5.2bn in 2016, according to figures (more or less similar, depending on methodology) from BNP Paribas Real Estate, CBRE, Colliers International, and JLL.

The full-year figures were given a timely boost with a very strong last quarter which saw more than €2bn in investments across 60 transactions (a year-on-year increase of 13%) as well as several larger portfolio deals.

Among them was List Retail Development’s 'under-the-radar' last-minute sale of five B&B hotels in Berlin, Stuttgart, Wuppertal, Dortmund, and Krefeld for over €40mn to a German institutional fund issuer. JLL advised the seller on an exclusive mandate.

All the main brokers are unanimous that hotels as an asset class have increased in investor favour, but despite higher demand there is still a lack of large-scale deals. CBRE’s head of research Jan Linsin says clearly, “The high level of demand for hotel properties is principally due to the very strong performance by the hotels themselves.”

The turnover in portfolio sales increased by some 50% to €2.8bn, while single-property transactions saw a fall of about 12%. CBRE notes a total of 154 qualifying hotel transactions, at an average deal size of €33m (an increase of 63% over 2015). Overall, the share of the asset class Hotels in the German commercial property market has risen from 5% in 2012 to 9% in 2016, “an increase in absolute terms of €3.7bn”, according to Thorsten Faasch, senior VP Hotels & Hospitality at JLL Deutschland. CBRE has slightly different figures, putting the hotel segment at 9.7% of the total investment market for 2016, up from 8% in 2015.

Non-domestic buyers were especially active, raising their share in the market from 50% to more than 60% (Colliers puts it at 54%). Among the sellers, Germans predominated with a market share of sales at 65%. All the broker groups agree that French investors were to the fore, representing about 30% of hotel investment volume.

Four cities (Frankfurt, Munich, Düsseldorf and Hamburg) accounted for about 40% of all transactions. CBRE puts the figure at 47% for the Top 5 cities (including Berlin). Berlin itself (at €696m) had the highest volume, followed by Frankfurt (€651m) and Düsseldorf (€376m). CBRE’s Head of Hotels Germany Olivia Kaussen pointed out that the share for the Top-5 cities was nonetheless 12% less than in 2015, as investors increasingly looked for value in secondary cities.

Also notable was the rise in hotel project developments, which accounted for 20% of transaction volume and a rise of 9% over 2015. A recent report from consultants Wüest & Partner pinpointed Berlin, Stuttgart, Hamburg and Munich as the most attractive markets for new hotel projects, given future business and personal overnight projections.

JLL, Colliers and CBRE all agree that 2017 will be a further dynamic year for German hotels, with no shortage of demand, but the lack of sizeable portfolios the main braking factor. Foreign investors in particular are looking for high-value core assets, particularly resort hotels, and are prepared to pay high prices, while project developments will continue to play a dominant role.