• Investors sell in tight German market

Transactions volumes in Germany fell by 19% last year to reach EUR4.2bn, due to falling supply and rising prices.

The figures were released as investor Peakside sold a mixed-used asset, including a Park Plaza hotel and Generator hostel, in Berlin for EUR100m.

Peakside sold the property on behalf of Peakside Real Estate Fund II. The property provided over 35,000sqm of space, with around 13,900sqm devoted to office space, 6,300 devoted to convenience retail space and 14,300sqm devoted to hostel and hotel space, the 870-bed Generator Hostel and a 155 room Park Plaza hotel.

Boris Schran, a founding partner of Peakside Capital, said: “This is an excellent illustration of Peakside’s ability to take a tricky asset with many complicated aspects and through focussed asset management activity and our market know-how, transform it into a high-quality core institutional assets.”

According to Union Investment and Bulwiengesa, the size of the German hotel market had doubled in the last 10 years. The pair said that the investable hotel market in Germany grew in 2017 by approximately 6% to EUR52.6bn.

The increase was attributed to the continued growth of the branded hotel segment in Germany – which was favoured by investors – as well as a general increase in supply. This was reflected in an upturn of 16.6% in the number of hotel beds over the last decade.

“Overnight stays in Germany, which have risen for eight years in a row, are the main factor behind this development,” said Dierk Freitag, departmental head and partner at 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.”

Union Investment and Bulwiengesa identified an investable universe of around 375,200 hotel rooms, which are split across small, medium and large towns and cities in Germany. The average value per room was approximately EUR140,100 in 2017. In the prior year, the corresponding figure was EUR135,600.

Whereas in 2016 some 10.2% of the calculated total market changed hands, the value of the hotels traded in 2017 was 8%. Martin Schaller, head of asset management hospitality at Union Investment Real Estate, said: “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.

“We expect the number of individual transactions in Germany to continue to fall in 2018. 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.”

Looking ahead, Union Investment and Bulwiengesa forecast around 5% growth in the institutional hotel market, in line with last year’s levels.

The analysis showed that value increases were also being achieved in German tertiary locations, which are of growing interest to operators and developers. “The branded hotel segment goes wherever there are high – and growing – tourist figures and correspondingly good prospects for running a successful hotel,” said Freitag. “Several small and medium-sized towns offer interesting catch-up potential here.”

According to Christie & Co, the market saw revpar increase by 3% last year, with prices also rising. The company described the top German cities as “expensive terrain”. In the hunt for larger margins and bigger yields, both operators and investors were seen to be comfortable with secondary and even tertiary locations.

Figures provided to Hotel Analyst by STR showed that performance was building, with rooms revenue up across the chain scales in April this year. Luxury hotels reported a gain of 14.4% on the year, while upper upscale was up 10.6%, upscale were up 14.2%, upper midscale 20% and midscale and economy 10.1%. The increases were the highest seen over the past year, across the board.

Lukas Hochedlinger, managing director, Central & Northern Europe, Christie & Co, told us: “There is a lack of supply rather than a lack of interest, but investors are willing to pay high prices for the right assets and for trophy assets. People are willing to pay relatively high prices for good properties. We are trying hard to encourage people to put assets on the market and I think in a couple of years, when the peak is behind us, you will see more coming to the market, particularly when portfolios are being restructured.”

 

HA Perspective [by Katherine Doggrell]: So, after a few years of shocking everyone as it moved from safe haven to must have, are German hotels at the top of their pricing? Hochedlinger said: “Yield compression has stabilised. I think we are quite at the top of the market already, I can’t see it going much higher, unless it is for a good core trophy hotel.”

So if you’re Peakside, or Park Hotels & Resorts, which sold the Hilton Berlin for around EUR350m, these are happy times.

Spare a thought for those folks at Premier Inn, looking to get into a market where the view may be lovely for those camped at the top, but thin for those trying to make the ascent. The company had been hoping to leverage its fondness for leases, but with other operators now enthused about the joy of leasing, it needs to bring something else to the table. In the meantime, rumours about its sale rumble on.

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