Hotel investment market in holding pattern

FRANKFURT, 4th October 2019 – The statistics may be clear, but they fail to reflect the continuing positive sentiment on the German hotel investment market. In purely statistical terms, the transaction volume fell by 20% compared to last year as well as the five-year average. The market is in a kind of holding pattern: there are plenty of willing investors with capital to spend, but a choice of suitable products is lacking.

After almost €600 million was invested in the first quarter and €870 million between April and June, around €820 million was ploughed into German hotel properties[1] in the last three months. Thus the total investment volume for the first three quarters of the year amounted to about €2.3 billion. “Even though we expect some large transactions to be completed before the end of the year, the volumes achieved in 2015 to 2018 will not be reached. The total investment volume for 2019 is expected to amount to around €3.5 billion,” said Stefan Giesemann, Executive Vice President of the JLL Hotels & Hospitality Group. Giesemann added: “We are partly attributing the current increase in investment activity to the planned amendment of the land transfer tax on 1 January 2010. That’s why some owners have decided to dispose their assets via a share deal this year.”

In addition, the consolidation of operators and brands will continue. “Numerous M&A transactions are currently in progress and will be completed either this year or at the beginning of 2020,” said Giesemann.

The hotel market is also subject to the same trends that characterise the entire investment market: the decrease in the investment volume is not caused by a lack of demand but by the insufficient availability of products. “Investors are desperately seeking investment opportunities,” said Giesemann. The hotel expert added: “While prime yields have stabilised at a low level in the top 6 locations (Berlin, Cologne, Düsseldorf, Frankfurt, Hamburg and Munich), prices of core hotel properties could increase further in second and third-tier cities. This rise is driven by a positive performance, the lack of products in top cities, and rising construction costs.”

Between January and September, a total of 58 single-asset hotel transactions with a value of €1.4 billion were registered. Thus the volume was about 36% below the previous year’s level (Q1-Q3 2018: €2.2 billion from 65 transactions). The decline was primarily owing to the absence of large transactions. The reduction in the large-volume segment was offset by a higher number of smaller deals. Compared to last year, the average transaction size fell by €4 million to €30 million.

The biggest transactions in the third quarter include:

• The sale of Center Parcs Bispinger Heide (907 units) to Aroundtown as part of a European portfolio, comprising seven Center Parcs. The seller was the private equity fund manager Blackstone.
• The sale of the 174-room Dorint Parkhotel Herrenkrug Magdeburg by Honestis to LLB Immo Kapitalanlagegesellschaft of Vienna. The hotel is operated by the Dorint chain under a long-term lease contract and is due to be renovated at a cost of €2 billion.
• The sale of a Holiday Inn Express at the railway station in Aachen as part of a mixed-use development (Blue Gate) to Base Camp for the European Student Housing Fund. Seller and developer of the 160-room hotel is the Merkur Development Group.
• The acquisition by Patrizia of the Holiday Inn Express, which was opened in 2015 at 80, Werhahn in Düsseldorf. The budget hotel with 164 rooms will in future trade under the Premier Inn brand. The property was sold by the Cologne family office Dereco.

Total portfolio transactions in the first nine month amounted to a volume of €905 million for 26 hotels (Q1 – Q3 2018: €644 million, 10 hotels).

• The 41% increase compared to the previous year was largely owing to the sale at end-September of a large hotel portfolio comprising 11 hotels in Europe by Principal Real Estate to AXA Real Estate. Seven of the properties are located in Germany (one in Berlin, Düsseldorf, Hanover, Kiel and Leipzig, and two in Cologne). The total price of the portfolio amounted to approximately €545 million. The transaction also completed the sale of the first Principal hotel fund that was closed in 2012. JLL acted as adviser to AXA.
• The acquisition of three hotels under the Acom brand in Nuremberg, Munich and Stuttgart by the UK-based budget hotel chain Premier Inn also took place in the third quarter. All three properties will trade under the Premier Inn brand from 2020. The seller was a private German investor.

Just over half of all transactions were carried out by German investors. In terms of the volume, however, foreign players represented the strongest investor group with a share of almost 60% or €947 million. This is attributable to the large portfolio purchase by French investment manager AXA Real Estate. Institutional investors accounted for 60% or €1.4 billion of the total volume. Hotel operators, property firms/developers, private equity/REITs and private individuals invested about €900 million in German hotels.