Motel One GmbH
Hotel room - Motel One
The Treugast “Most Wanted Investment Partner Award” was won by the Munich-based Motel One, which opened four new hotels in Germany (2X Berlin, Munich and Freiburg) bringing its German room contingent up to 1,976 rooms. Also highly ranked were Accor Hotels and H-Hotels, with big upward moves coming from Novum and Place Value.
After several boom years on the German hotel market, things are cooling down, particularly in respect of larger portfolio deals, although figures in from Q3 suggest that interest in individual hotel properties remains buoyant.
By the end of Q3, the German hotel investment market saw about €2.9bn of deals, down about 5% on the same period last year. However, for individual deals it’s a different story – both JLL and BNPPRE put the volume at €2.2bn, with Colliers International estimating €2.4bn. Portfolio deals fell by about 50% to €640m.
Hotel development deals are holding up strongly, with CBRE putting their share of the investment market at 26%. German domestic investors are back in force, investing €1.6bn, up 14% on last year, with foreign buyers in retreat – accounting for €1.3bn, down 10%. Most of the big brokers are anticipating full-year investment volume of €4bn, putting it at just about last year’s mark.
A new study from hospitality consultancy Treugast shows that the German hotel market grew in 2017 by 0.1% in terms of bed occupancy, and that for the first time the average room rate broke through the €100-per-night barrier.
The Treugast Investment Ranking 2018 analyses the most important hotel operators in German, testing them for quality, strategy and working methods. The Treugast “Most Wanted Investment Partner Award” was won by the Munich-based Motel One, which opened four new hotels in Germany (2X Berlin, Munich and Freiburg) bringing its German room contingent up to 1,976 rooms. Also highly ranked were Accor Hotels and H-Hotels, with big upward moves coming from Novum and Place Value. A new debutant is Gorgeous Smiling Hotels, the Munich-headquartered company that works with several major franchise partners such as Holiday Inn Express, Hilton, Arthotel, Mercure and Best Western.
Overnight stays boosting business market
According to a report this summer from Union Investment and market researchers BulwienGesa, the German hotel market has doubled in the past 10 years. The number of hotel rooms has grown 16.6% over the period, while strong performance in the hotel chain sector led to the boost in market value. Significant increases in occupancy and room rates pushed RevPAR at German hotels to reach €66.70 in 2017, up from the €49.90 recorded in 2016.
“Overnight stays in Germany, which have risen for eight years in a row, are the main factor behind this development,” said Dierk Freitag of researchers Bulwiengesa. “Despite competition from Airbnb, the institutional hotel market continues to grow steadily. Alongside the traditional hotel market, newer hotel concepts are also part of this growth story. This includes apartment hotels, which are becoming increasingly investable and therefore also feature in our market value model.”
Transaction volume in hotels fell in 2017 over the previous year’s recorded €5.2bn, when 10.2% of properties were sold. In 2017 this figure dropped to 8%, and Martin Schaller, Union Investment’s head of Asset Management Hospitality, predicts the number of transactions will continue to drop.
“Property holders’ willingness to divest themselves of hotel assets has fallen significantly compared to the prior year. The decrease in product availability and rise in prices are reflected in declining transaction figures. Hotels nonetheless remain a highly liquid asset class capable of delivering above-average returns,” he said.
"During this market phase, a sophisticated, long-term investment strategy is required. Options here include forward deals and targeted improvements to existing properties that boost their value, assuming they are to be held in the portfolio for an extended period."
Union Investment and Bulwiengesa also expect Germany's institutional hotel market will grow about 5% this year, corresponding to last year’s level. “Many existing properties are getting rather long in the tooth, which is driving the development of new hotels across all segments and putting huge pressure on privately run hotels. Real estate for temporary living, such as apartment hotels, is likely to profit disproportionately from the continuing strong growth in 2018,” said Schaller.
Putting its money where its mouth is, Union Investment itself earlier this month secured a portfolio of four hotel development projects in Germany from Benchmark Real Estate Development via a forward purchase agreement, for an undisclosed sum.
Three hotels in the deal, which will be built in Dresden, Oberhausen, and Eschborn, are to be transferred to the holdings of open-ended real estate fund immofonds 1. The fund is marketed exclusively in Austria. An additional planned hotel property in Freiburg im Breisgau is being acquired for special fund UII Hotel Nr. 1. The 675-room portfolio contains two future Super 8-branded hotels and two planned long-stay formats by Hyatt House and Adagio Access. Long-term leases with a 25-year term have been agreed for all four development projects.
Meanwhile, among new entrants to the German hotel market are the Panama-headquartered Selina Hotels, targeted at the digital nomads. After its European launch in Porto, Portugal, the brand now intends to expand to large German cities like Berlin, Hamburg, and Munich. The chain focuses on existing hotels in “trendy locations” that can be rebranded within a period of 90 to 120 days. Selina is looking for leases with terms upward of 20 years. The company plans to talk to investors and local partners in Germany to get the hotel brand established quickly, it says in a statement. The brand was created in 2014 by two founders from the real estate industry and has recently completed a round of financing for $95mn. The most notable investor is WeWork founder Adam Neumann.
And, following the spectacular sale of the UK coffeehouse chain Costa Coffee to Coca-Cola in September for more than €4bn, Whitbread, the parent company of Premier Inn, says that it intends to push ahead with its German expansion faster than originally planned. It now aims to have 33 hotels with over 6,000 beds by 2021. It is looking for properties, project developments, existing hotels and conversion properties in central locations in Germany’s 25 largest cities.
Inge van Ooteghem, COO for Premier Inn Germany, says that the German hotel market is still in the midst of a transition from owner-operated individual hotels to chain hotels, similar to the state of the British market ten years ago. A large part of the extended pipeline has already been secured. 13 existing hotels and six hotel projects were acquired from Foremost last February; Premier Inn Investments is also building new hotels in cities such as Düsseldorf, Dortmund and Mannheim.
