Full hotel pipelines in Europe and Germany require further market growth
Hotel market report by Engel & Völkers Hotel Consulting
- Number of travellers in Europe up 8% in 2017 – Growth in demand driving hotel property industry
- Hotel property has established itself as an asset class and, with a yield premium still available, investors’ current favourite
- Germany still one of the most attractive hotel markets in Europe. Major hotel development pipelines define future prospects in top five locations
- Product shortage on core markets leading to regional shift in transaction volume and yield compression. Stable transaction volume forecast in Germany for 2018
Revenue per available room (RevPAR), the most important key performance indicator for hotels, shows that the highest growth rates are in Eastern Europe. Average RevPAR here is up by 10.8%. This is significantly higher than the rise for Europe as a whole of 5.6% on average. RevPAR also climbed significantly in Southern Europe at 9.5%. By contrast, expansion fell short of the European average in Northern Europe (up 4.7%) and Western Europe (up 2.2%).
“Hotel property has established itself as an asset class and, with premium yields still available, investors’ current favourite as well. The question is how long the current boom will last. The pipeline in Europe is very well filled with 300,000 rooms over the next three years. This is also true for Germany’s top five locations. The market therefore has to keep on developing positively to ward off any surplus capacity,” said Andreas Ewald, Managing Partner of Engel & Völkers Hotel Consulting GmbH. “What it comes down to in investment decisions is a crucial analysis of the macro and micro location, right down to street level, so that even weaker phases on the hotel market can be ridden out.”
Top five German cities report growth in overnight stays
In Germany – the most important market in Europe alongside the UK – the positive development is also reflected at the top five cities. Munich is the most expensive hotel market with an average room rate of EUR 125. In second place is Hamburg at EUR 117, followed by Düsseldorf at EUR 113. From January to November 2017, Munich saw an increase in overnight stays of 10.9% as against the previous year.
However, room occupancy was down slightly by around one percentage point at 75%, due in part to the strong rise in new capacity. The drop in the average room rate of 4% over the same period was even more striking. The Bavarian capital has the most extensive hotel pipeline of all top five cities with around 13,000 beds, which will further exacerbate the competitive situation. Investor interest is nevertheless at a high level. This is backed up by the transaction volume, which has doubled since 2016 to around EUR 0.9 billion. This high demand is resulting in the lowest returns among the top five.
Berlin is still the frontrunner in Germany in terms of overnight stays, with a figure of 28.9 million in the period from January to November 2017 – a slight increase of 0.7% compared to the same period of the previous year. However, airberlin's insolvency last year had a negative impact on tourism figures.
Overnight stays in November fell by 4.1% compared to the previous month. If it is to keep pace with the growth of 13,000 beds by 2020 while maintaining stable occupancy levels, Berlin will need annual growth in overnight stays of around 4%.
Hamburg achieved an increase of 4.1% to 12.8 million overnight stays from January to November last year. Among other things, this positive development was made possible by the opening of the Elbphilharmonie and heightened international awareness, in part on account of the G20 summit. To maintain this occupancy level until 2019, overnight stays will have to increase to around 15.5 million, corresponding to an annual growth rate of 5.6% by 2020. The as-yet untapped potential of international travellers means that the city can be optimistic about achieving these targets. In addition to the positive development in demand, average room rates in Hamburg also rose by 5.3% to EUR 117 – the strongest increase in any of the big five. As it also has the highest room occupancy among the top five at 81%, the city has taken the lead in Germany's RevPAR table for the first time.
Frankfurt set a new personal best with around 8.8 million overnight stays in the period from January to November 2017. As the banking metropolis traditionally experiences strong fluctuations in occupancy between work days and weekends, Frankfurt and Düsseldorf together have the lowest occupancy rate of the top five (70%). Around 9,000 new hotel beds will be available by 2020, which will amplify the competition for hotel guests here. In order not to drop below the critical occupancy level of 70%, overnight stays will have to rise to 10.8 million by 2020.
Around 4.4 million travellers had an overnight stay in Düsseldorf in the period from January to November 2017 (up 4.3% compared to the same period of the previous year). While North RhineWestphalia's capital is the smallest of the top five locations, it is currently enjoying a high level of interest among hotel investors. The excess demand of recent years has given way to a strong pipeline of around 7,000 beds. An additional one million overnight stays by 2019 will be needed to absorb this capacity. This is a lofty goal, as around 70% of total demand is dependent on cyclical trade fair business and business tourism.
"We expect that the transaction volume in Germany for 2018 will be at approximately the same level as the previous year. The ongoing shortage of supply on the core markets, in addition to rising yield compression, means that focus is shifting more and more to B locations," said Ewald.
Survey methodology of the "2018 Hotel Market Report for Germany"
The "2018 Hotel Market Report for Germany" combines years of international hotel consulting experience with innovative data analysis methods. In addition to its own research, Engel & Völkers Hotel Consulting also used key performance indicators provided by the benchmarking specialist FAIRMAS.
Together with HQ plus, Europe's leading rate shopper for the hotel industry, an algorithm was developed to usher in a new generation of market analysis. Alongside standard benchmark-based indicators, the hotel market report also contains a price/quality analysis that utilises publicly available data points. The survey covers virtually all market participants and is thus representative of the market as a whole.
About Engel & Völkers Hotel Consulting GmbH
Engel & Völkers Hotel Consulting GmbH (EVHC) was formed as a holding company within the Engel & Völkers network in November 2016. It pursues an end-to-end advisory approach in order to support owners, investors and operators throughout the entire hospitality life cycle. The company's service spectrum covers the areas development, strategy and asset management as well as transaction advisory on the buyer or seller end. EHVC benefits from the wealth of experience and extensive track record of its staff, and may take advantage of the international network of Engel & Völkers which includes branch offices in 32 countries on four continents. It is a fully-owned subsidiary of Engel & Völkers Investment Consulting GmbH.
Phone: 030-28 44 987-65
About HQ plus
HQ plus offers a precise overview of the most important distribution channels to revenue managers and hoteliers for both individual and larger hotel chains. The software, developed by HQ plus, combines all relevant data into a userfriendly interface. This enables a timely response to market changes and thus signi cantly contributes to the sales and earning improvement of each house. HQ plus is Europe's current market leader with circa 2,000 customers. The company, founded in Berlin in 2012, currently has 24 employees.