Size of 'investable' German hotel market available for first time – study

A new study by leading fund manager Union Investment Real Estate and market research group BulwienGesa has quantified the size of the German hotel market for the first time. The actual 'investable' size of the market has to date been a mystery for investors, with a lack of clear data hindering analysis of the market by segment.

The study shows that 47% of all hotel rooms in Germany can be classed as 'investable', with the majority being midscale and upscale hotels located in major German cities that have seen a high level of building activity in recent years. The researchers also looked at hotels in smaller towns and holiday areas in determining the size of the market.

The combined market value of 'investable' hotels in Germany is put by the study at €47.1bn, equating to an average value of €130,500 per room. Using the same criteria, the value of investable hotels in Germany increased by 64% between 2007 and 2015. This can be attributed to the dynamic growth of branded hotels, which are preferred by institutional investors, and to the increase in value of existing hotels.

According to Martin Schaller, head of asset management hotels at Union Investment Real Estate, “These figures illustrate the importance of the hotel asset class within the commercial property market. In 2015, the hotel segment had the highest transaction volume as a proportion of the total market value of the respective asset class.”

Last year’s record transaction volume of around €4.4bn, which admittedly included a number of development projects, equates to around 9% of the calculated total market. “This clearly shows that hotels are a highly liquid asset class,” said Schaller.

To compute the initial indication of the value of a hotel room, Union Investment and bulwiengesa recommend applying the “2,000 times rule” to the average revenue per available room (RevPar). That is, the value of a hotel room roughly equates to 2,000 times average RevPar.

“Using the ‘2,000 times rule’ allows you to get pretty close to the average values we arrived at, although obviously this rule of thumb is no substitute for property-specific valuation,” said Dierk Freitag, head of the hotels division at bulwiengesa.

The latest ranking list of Germany's top hotels by turnover, published by trade journal Allgemeine Hotel- und Gastronomie-Zeitung, shows that the top 200 raised their net turnover in 2015 by 6.7%. This was helped by room rates 2.8% higher on average than a year before, along with a 1.7% rise in the occupancy rate, to 72.7% on average.