The German Hotel Market: emerging stronger from the crisis
Frankfurt. All of Germany’s 9 key hotel markets still suffered significantly in 2021. However, 6 out of the 9 top cities were able to record improvement in occupancies. Hotel real estate specialist Christie & Co reviews an eventful year in Germany's 9 key hotel markets Berlin, Munich, Frankfurt, Hamburg, Cologne, Dusseldorf, Stuttgart, Leipzig, and Dresden.
As in 2020 the pandemic caused some hotel openings to be postponed to 2021, Germany saw 87 hotels open throughout the 9 cities, increasing room supply by 15’500 rooms, and a 150% increase in hotel openings compared to 2020. Frankfurt leads with 18 new hotel openings throughout 2021, adding nearly 4’200 rooms to the hotel market. The overall pipeline for the next three years remains strong, especially for Hamburg, foreseeing an increase in room supply by 10% in 2022. Cologne will be the city with the most hotel openings in the same year, adding 17 hotels with over 3’000 rooms to the destination and another 11 hotels in 2023/24, increasing the current supply by 31% over the next three years. Whether these project developments can actually be opened on time due to rising costs or supply shortages remains to be seen.
Hamburg is a renowned congress, fair, as well as musical destination and is therefore expected to recover ahead of the other cities, due to its high percentage of domestic tourists, notable already pre-Covid-19. Like the other German cities, the first half of 2021 was still impacted by tight, Covid-related restrictions for the lodging industry, but Hamburg already had a strong summer in 2021, peaking with 1.3m overnight stays in August.
The lack of events, festivals, as well as trade fairs in 2020, caused a significant decline in arrivals and overnight stays for Berlin. However, numbers increased slightly by 13,7% in 2021 compared to 2020, showing the impact of lifted regulations on travel bans. Both hotel and bed supply decreased by a CAGR of -3,2% since 2017, demonstrating the impact of the last two years on the Berlin hotel market. Nevertheless, the confirmed pipeline comprises c.11,000 rooms in over 60 projects.
Dusseldorf’s tourism in comparison has been comparatively severely affected by the impact of the Covid-19-pandemic. Due to the German hotel market still being subject to strict travel bans until May 2021, ADR and RevPAR performance were negatively impacted, decreasing by -10,2% and 7,6% respectively. Dusseldorf is a key trade fair destination and the hosting of the Medica, with 46,000 visitors, 76% from abroad, brought a ray of hope for Dusseldorf’s hoteliers and for the return of trade fairs and international demand in the future.
Cologne accounted for 2.8 million overnight stays in 2021. Especially the second half of the year was promising, with an increase in arrivals of 2,5% and an increase in overnights by 8,1% compared to 2020. Among the top 9 cities in Germany, Cologne has historically shown the most sustainable development of the hotel market, as demand has increased significantly more than supply pre-pandemic. The overall high demand stability over the past years indicates a rather rapid recovery.
Additional to the commonly known Top 7 cities, Christie & Co also investigated the fast-growing cities Leipzig and Dresden, in Saxony. The hotel market in Dresden suffered from the Corona pandemic: with only 1.1 million overnight stays in 2020 and 2.2 million in 2021, the number of overnight stays had more than halved compared to 4.7 million in 2019. With most restrictions lifted, Dresden as a tourist destination is in an above-average position to recover quickly from the Covid-19 pandemic and its aftermath. After the lockdown, which lasted until the end of May 2021, Leipzig's tourism industry recovered relatively quickly in the summer, with 368,339 overnight stays even setting a new record in August 2021. A high percentage of domestic tourists will be a key driving factor during the recovery process. Due to its highly heterogeneous demand, a fairly speedy recovery is to be expected.
Frankfurt has seen a steady increase in arrivals and overnight stays over the last several years, a trend which unfortunately stopped in 2020. With the pandemic, corporate demand came to a grinding halt, reducing the number of overnight stays by 61% to just 4.1 million in 2020 and 4.2 million in 2021. The return of international business demand will be crucial for the hotel market recovery.
In 2021, Stuttgart recorded with 1.6 million overnights similar numbers as in the previous year and the loss of trade fair visitors further enhanced pressure on KPI performance, with both ADR and RevPAR decreasing by nearly another 10% compared to 2020. However, throughout the second half of 2021, the rising number of overnight stays also shows travellers increasing confidence in the lodging industry. Most of Stuttgart’s demand is domestic, which will benefit the market’s recovery.
The Bavarian capital Munich experienced a first positive sign for the recovery of the hotel market throughout the second half of 2021, also represented by an overall increase in occupancy of 3.9pp for the whole year. There was a notable shift in source markets from overseas to European guests. The driving source in the first half of 2021 was domestic visitors who made up 76% of all overnights.
For the first time, Christie & Co also focuses on the emerging trends in the hospitality industry. In addition to the desire for a more digital hotel stay experience and Long Stay products, or Serviced Apartments with a kitchen, the trends in the hotel real estate sector are also beings elaborated. Mixed-Used Assets are ultimately the result of modern urban development, combining living, working, shopping, fitness, gastronomy, leisure and even education. From an investor's perspective, round-the-clock use of an asset with multiple usages is not just a profitable investment, but also mitigates risk. Subsequently, the orientation toward mixed-use assets will become inherently more present. A second trend are Conversion Assets, due to the lack of suitable project development sites. Developers are increasingly looking for assets that could be converted into hotel projects or mixed-use properties. However, it is not just hotel developers that are looking to convert office buildings, schools, or other assets such as prisons. Project developers are increasingly interested in buying hotel real estate to open senior homes or transform assets into residential units.
Finally, signs are now pointing to recovery: “Operators as well as investors remain on a targeted growth path and remain attracted by the German hotel market as an attractive investment. In the long term, we expect transaction volumes in the German hotel market to rise, and new players are showing interest in hotel assets in Germany”, explains Benjamin Ploppa, Director – Head of Hotels Germany at Christie & Co, the positive outlook. “Nevertheless, it remains to be seen how recent political events in Ukraine and Russia will unfold in the medium to long term. While travel and booking behaviour has also been affected in past crises, the economic consequences will be felt far more widely across the borders of the countries involved. For example, higher energy costs will also be reflected in price increases in the tourism sector. During the pandemic and after the outbreak of the war, German hoteliers have shown extreme flexibility, solidarity, and humanity and demonstrated how to accept and overcome the challenges”, concludes Benjamin Ploppa.