Hotel investment market just misses €4bn mark

German hotel investment market characterised by large number of single asset transactions, while major portfolios are absent from the scene

January 11, 2019

FRANKFURT, 11th January 2019 – Original expectations that the German hotel investment market would reach a transaction volume of €4 billion were not fulfilled by end-2018, but the market still managed to achieve a positive performance over the past year. Never before has so much capital been invested in single asset hotel transactions (+12%) as in 2018 (€3 billion). However, the flipside is that portfolio transactions shrank to a volume of €850 million, which was far below the volumes of the four previous years.

The hotel transaction volume remained at a high level in 2018, recording €3.85 billion (-7% compared to 2017) and 109 transactions (+11%). It ranked fourth behind 2015, the record year of 2016 when the highest portfolio volume was attained, and 2017. The three previous years all exceeded a volume of €4 billion. In a longer-term comparison, last year’s result was 7% above the five-year and 73% higher than the ten-year average.

Stefan Giesemann, Executive Vice President of the JLL Hotels & Hospitality Group, said: “Yes, the result has fallen for the third consecutive time. No, that does not signal declining interest

in this asset class. It’s the same old story: if suitable (portfolio) offers are not available on the market, neither German nor foreign investors have the opportunity to invest. It’s very simple. Last year, only one large portfolio transaction in the three-digit-million range took place, compared to three in 2017 and seven in 2016. However, the increase in individual transactions (+11) compensated for this shortage, because capital is sufficiently available and financing conditions are investor friendly.”Giesemann added “The hotel markets continued to show robust growth with record numbers of overnight stays in almost all cities, stable domestic demand and a steady rise in foreign tourists, an important reason for the strong performance of hotels. This encourages foreign off-shore investors to invest their capital into German hotels with lease structures.”

In 2018, a total of 93 single asset transactions were completed. Most of the deals were between €25 million and €30 million in size. The top five transactions accounted for a volume of about €900 million, and included the sale of Hilton Berlin in the second quarter by a joint venture of Park Hotels & Resorts and Abu Dhabi Investment Authority (ADIA) to Aroundtown for approx. €297 million. The 601-room hotel is located on the Gendarmenmarkt and represents the largest single asset deal ever to have taken place in Germany. JLL acted as adviser to seller.

Other examples of individual transactions in 2018:

➢ the sale of the Leonardo Royal Hotel Munich to Invesco in the second quarter for €157 million. The seller is the Israeli Fattal group, which leased back the 424-room hotel on a long-term basis.

➢ the sale of the Bristol in Berlin to Aroundtown in the fourth quarter for around €120 million. The buyer acquired the owning company Verwaltungsgesellschaft Hotel Bristol Berlin mbH within the framework of an insolvency procedure. The five-star hotel with 301 rooms on the Kurfürstendamm was opened in 1952 and until recently was still operated under the Kempinski brand.

➢ the sale of Dorint Hotel at the Cologne trade fair site to Commerz Real for its Commerz Real Institutional Hotel Fund in the fourth quarter. The 313-room hotel was opened in 2001 and offers 20,000 sqm of rental space plus 131 underground parking spaces. A long-term lease contract is in place with the tenant Dorint. The sales price is estimated at between €90 million and €100 million.

➢ the purchase of the Motel One project development at the new Stuttgart central railway station in the fourth quarter as part of a forward deal by Zurich Group Germany. The purchase price was around €95 million. The seller was the developer Reiß & Co. Completion is expected in the fourth quarter of 2020.

The investment volume in the portfolio segment fell by 70% compared to the record result of 2016. At the time, more than a handful of the 22 portfolios were in excess of €100 million (2018: 16 transactions in total and only one above €100 million). The average invested capital per transaction decreased to €52 million (the average in 2016 was €123 million).

The largest portfolio transactions included:

➢ the sale of four hotel developments of benchmark. REAL Estate GmbH to Union Investment in the third quarter as part of a forward purchase agreement. The portfolio comprises Super 8 Hotels in Dresden and Oberhausen as well as two Longstay hotels in Eschborn (Hyatt House) and Freiburg in Breisgau (Adagio Access).

➢ the sale of three Ibis hotels in Munich to BNP Paribas REIM in the third quarter. As part of the sale, the lease contracts with the franchisee were extended by 20 years.

➢ the sale of three H-Hotels in Friedrichroda, Wiesbaden/Niedernhausen and Hanover to Immac subsidiary DFV Deutsche Fondsvermögen in the fourth quarter. The seller and tenant is the H-Hotels group.

➢ the purchase of three Mercure Hotels in the fourth quarter in Hagen, Hamm and Lüdenscheid by hotel owner and operator Somnoo in connection with its finance partners Rive PI, Extendam and 123 IM. The seller is Langdor Hotels. The hotels will continue to be operated under the Mercure brand.

The majority of the investors originated from Germany. Domestic players again significantly increased their activity compared to the previous year, accounting for approx. 72% of all transactions (individual and portfolio) and a volume of €2.8 billion. Foreign investors, which were particularly interested in large portfolios or individual transactions, only generated almost €1.1 billion. Most capital came from the UK (€300 million from five transactions), followed by French investors with about €164 million and eight transactions. Off-shore investors from the Middle East and Asia invested around €180 million in three German hotel transactions.

Institutional investors accounted for almost half of the hotel transaction volume, generating around €1.8 billion from 46 transactions. Property companies were in second place with €814 million. Although these investors only carried out 10 transactions, they were responsible for the two of the largest deals of the year following the purchase of Hilton Berlin and Bristol Berlin by Aroundtown. Private equity firms and REITs were ranked third, with €640 million from 19 transactions. Hotel operators accounted for a much lower transaction volume of €288 million, although this was from 16 transactions.

Stefan Giesemann concluded: “If available capital were the only condition for the development of the transaction volume, it would be easy to provide a forecast. Although the current overall conditions are certainly difficult at present, particularly with regard to the oft-cited geopolitical and trade policy developments, factors specific to the property market remain encouraging. This also applies to the hotel market. A transaction volume of between €3.5 billion and €4 billion is also possible for 2019. Perhaps one or more large transactions that could not be completed in 2018 will take place as early as the first quarter. The mood on the hotel investment market is positive and we have not seen any recent evidence that interest is waning. In the absence of high-quality and large products, various investor groups with different capital costs will continue to focus on the same hotels. This will further intensify the competitive situation. However, a resulting shift towards smaller cities could bring about a reduction in the volume per portfolio transaction. There will be no lack of momentum in single asset transactions in the mid- and lower range.”


*The Hotels & Hospitality Group of JLL, Germany includes individual transactions with an investment volume of at least €5 million and portfolio transactions for hotels based only in Germany. Also included are German hotels that are sold as part of cross-border portfolio sales.