How do you see the current development of the German hotel real estate market and which trends can be concluded from this for the future?
Germany’s total hotel and B&B supply has decreased in the last decade 2009-2018 by 7% or approx. 1.400 businesses. At the same time, bed supply increased by 15%, which indicates the opening of larger hotels whilst smaller one’s went out of business due to predatory competition, investment backlog and other operational issues. In 2019, more than 170 hotels with almost 28,000 rooms are expected to be added to the market. During the same period, demand for hotels and B&Bs grew by an astonishing 42% (measured in overnights). In 2018, Germany recorded approx. 132 million arrivals and 265 million overnight stays. RevPAR increased by almost 80% in the period under review (2009-2018), which was driven both by occupancy (+16.7pp to 71,7% in 2018) and rate (+37,5% to €103 in 2018). The strong development translated into strong demand for investment grade hotels with transaction volumes peaking in 2016. Lower volumes in the following years can be traced back to lack in supply rather than weakened demand. Like other real estate asset classes, the latent demand lead to plummeting yields. For the near future, we expect strong demand yet decelerated yield compression, as some investors have become more cautious in times of record high leases.
Why is the German hotel real estate market very attractive for international investors? Are there any special features compared to other markets?
Germany’s economic fundamentals are exceptionally strong. Its strength measured by total GDP remains unparalleled in Europe. The country profits from a low unemployment rate, high export figures as well as a budget and tax surplus. The political and legal stability as well as a well- maintained infrastructure and its advantageous geographical location in the centre of Europe support the country’s positioning as investment safe haven. Besides, Germany benefits from one of the highest shares of domestic travel, reducing dependency of international demand and thus further adding stability to the hotel real estate markets. The aforementioned strong performance development in the last decade together with the prevalence of (mostly) fixed leases, which provide predictable returns, which remain above other real estate asset classes’ returns, have facilitated the risk underwriting for international investors. The biggest challenge for international investors remains the sourcing of opportunities in this well connected and mature market.
Warimpex acquired a hotel in Darmstadt in April. What distinguishes Darmstadt as a location for hotel projects?
Darmstadt is considered a German third-tier destination and has not been a top priority for international developers and investors so far, which have been feeling more comfortable in engaging in top-tier cities. Darmstadt profits from its strategic location close to, amongst others, Frankfurt, Wiesbaden, Mainz as well as Frankfurt International Airport, which is the country’s largest airport. Darmstadt’s economy is driven by IT companies, pharmaceutical and chemical industries, machinery construction as well as space and satellite technology. Well-known companies such as Merck (headquarters), Procter & Gamble, Deutsche Telekom and Carl Schenck AG are located here and generate stable levels of both corporate and meetings- and incentive hotel demand.