Hotel groups are ignoring short term concerns over economic conditions and strong pipeline, and doubling down on their commitment to growing portfolios in Germany and surrounding countries.
Radisson has just announced it will accelerate expansion of its Radisson flags in Germany, Austria and Switzerland. A strategic joint venture sees the group working with German developer Fay Projects, and the newly created Fast Lane Hospitality as a manager of the properties.
The first fruit of the arrangement will be a Radisson hotel in Leipzig, where Fay is already constructing a 224-room property. Fast Lane will take a 25-year lease on the property, which should open in 2022. Fast Lane is headed by Radisson’s Yilmaz Yildirimlar, alongside Simon Hubbeling and Thomas Kahl of Georgeous Smiling Hotels.
Elie Younes, chief development officer at Radisson Hotel Group, explained: “The German market is becoming increasingly versatile and requires an unconventional approach to accelerate growth. We look forward to a successful journey with our partners and to unlock value to various stakeholders through this venture.”
GSH is an established multi-brand operator, managing 90 properties in the DACH region, and is eyeing expansion into other European markets including the UK and Netherlands. To date, it has concentrated on managing franchised brands under the Holiday Inn family, Hampton by Hilton and Wyndham’s Super8, as well as operating a wider range of hotels under flags including Best Western and Choice.
Fay is active across many German markets, having leased a number of hotel projects in the last year. It recently leased a new hotel in Chemnitz to operator GS Star, which will be branded as a Super8, and in the summer signed Meininger to a development in Cologne. The group is an established commercial player, albeit relatively new to the hotel sector.
Meanwhile, Swiss investor Aevis Victoria has made a significant second step in building its hotel presence, buying a portfolio of eight hotels from Credit Suisse Real Estate Fund Hospitality. The acquisitions include the InterContinental in Davos, and hotels under the Seiler brand.
Integrated with the Victoria-Jungfrau Collection, which it bought in 2014, its subsidiary Swiss Hotel Properties will now hold an 896-room portfolio with rental income of CHF20m a year. The group is also acquiring the management businesses, giving it a platform with annual revenues of more than CHF135m.
Germany’s leading budget hotel brand, Motel One, continues its growth in the region, having recently opened its first property in Poland, as well as adding a 250-room hotel in Munich-Haidhausen, with both properties developed in-house. An ownership shuffle in the summer saw Proprium Capital Partners acquire the 35% stake in Motel One, held for the previous 12 years by Morgan Stanley Real Estate Special Situations Fund III.
Motel One’s latest performance figures for Q3 of 2019 did reflect a weaker German market, with occupancy slipping 2% to 78%, but overall revenues were up 11% year on year to EUR146m; ebitda edged up to EUR48m. The group has 73 hotels open of which 51 are in Germany. The development pipeline includes 16 more German properties, and nine outside the country, while 20 of the 25 will be rented assets. Foreign markets are starting to look more attractive, notes the company: “Because of the overheated property markets and the high number of hotels in the pipeline, there is a limit to how much sustainable growth can be achieved through new contracts at the moment.”
HA Perspective [by Chris Bown]: It is clear that Radisson has decided it needs to adopt a close partnership model to expand in Germany. While it’s been successful leading the brands into central and eastern Europe, its peers have to date made greater headway in the substantial German market.
It’s a similar approach to that which IHG has taken with its multi-development agreements, looking for a structure where leases can be signed – without appearing to be directly linked to the brand. What’s not clear, is quite how Radisson is standing behind the newly formed Fast Lane, to give it the covenant strength to sign long leases.
However, while a new company, Fast Lane is clearly using the DNA of GSH, an established player with principals that are pushing hard out of Germany to create a leading European third-party manager. With aligned aspirations, the new partners could generate some traction. And having recently paid up for full ownership of the German brand Prizeotel, Radisson should have eyes on the ground to spot new hotel sites, as they come up.
Additional comment [by Andrew Sangster]: Germany does seem to be the apple of most hotel brands’ eyes right now. And yet there remain a number of significant structural challenges in the German market.
On the demand side, Germany still suffers from a comparatively low room rate compared to similar European countries, particularly with regard to the major cities and the luxury market. Figures from STR for YTD to September for luxury hotels show, for example, Amsterdam at USD408, London at USD 432, Paris at USD690 and Berlin at just USD239.
And on the supply side, Germany is predominately a leased market, a big problem for most of the major asset light hotel brands, and there is currently a big building programme. Figures from TopHotel show 229 hotel openings with 37,766 rooms planned for next year against the 66 hotels opened planned to open this year. For 2021, there are 186 new projects already underway.
It is the smaller groups and independents who account for 677 of the planned 762 hotels in 2020. International players include IHG with 33 Holiday Inn Express in the works and Accor with 14 Ibis Styles. Marriott has 15 Moxy hotels in the pipeline.
Domestic German brands are strong: The niu, an offering from Novum Hospitality, is looking at 37 new hotels and Motel One, which already has a strong foothold, is planning 12 hotels.
With the growth of third-party management companies like Gorgeous Smiling Hotels, the proportion of international brands in the German market ought also to grow. It is interesting, however, that many of these new operators are also choosing to develop their own offering and this is presenting a challenge to the received wisdom of global brands dominating.