Hotel investment market nears 2016 peak after record Q4

Foreign investors make their mark with large-scale transactions

January 09, 2020

FRANKFURT, 9th January 2020 – The German hotel investment market experienced its strongest fourth quarter in years, registering an exceptionally high transaction volume of €2.5bn. This in turn boosted the total volume in 2019 to approx. €4.86bn, only just short of the all-time high registered in 2016 (€4.89bn). The volume was 26% above the previous year, around 20% above the five-year average and as much as 93% higher than the average for the past ten years. A total of 94 transactions were completed (2018: 109) in the German hotel market.

“At the end of September, we did not foresee a year-end rally likethis. Our original forecast of €3.5bn to €4bn was significantly exceeded, not least because of increased off-market activity relating to large single assets and portfolios,” said Heidi Schmidtke, Managing Director of the JLL Hotels & Hospitality Group in Germany. Schmidtke added: “In total, five portfolio transactions in the three-digit-million range were completed in the last three months, eclipsing the level of activity in the portfolio segment over the past two years.”

Schmidtke also specifies a further reason for the impressive result of the hotel investment market: “The upcoming reform of the land transfer tax relating to share deals put heightened pressure on sellers to divest properties before the end of the year. Although the entry-into-force of the planned reform was put back by six months to mid-2020 in October 2019, some share deals were already targeted for year end-2019 and pushed through accordingly.”

More than €2.8bn was invested in 77 single-asset transactions in 2019, corresponding to adecline of around 6% compared to the previous year. The average transaction size was about €36m (2018: approx. €32m).

The largest single-asset transactions in 2019, particularly in the fourth quarter, included:

  • the off-market sale of the Hotel De Rome in Berlin by Commerz Real to the Singapore sovereign wealth fund GIC and Caleus, in which JLL acted as the adviser to the buyer. This transaction set a new record on the German market in terms of the price per room.
  • the acquisition of the Hilton Munich Park by Commerz Real and Hines for the open real estate fund Hausinvest. The transaction included the entire ‘Tucherpark’ quarter in Munich. The hotel is estimated to comprise approx. 15-20% of the value of the total complex of €1bn-€1.2bn. The seller was Hypovereinsbank (HVB).
  • the sale of the 4-star hotel Maritim Düsseldorf Airport City (533 rooms) for €162m by Maritim to Commerz Real. The hotel was transacted in a sale-and-lease-back deal securing a 30 year contract for Maritim.
  • the off-market sale of the NH Collection in Frankfurt’s Europaviertel. The hotel currently under development in the 120m-high ‘The Spin’ is expected to open at the beginning of 2021 and was sold in a forward deal by Groß & Partner to an association of professional pension funds.  

In the portfolio segment the investment volume more than doubled to over €2bn compared to 2018,with only one transaction more (17) than in the previous year (2018: €850m and 16 transactions). The average volume per transaction increased significantly to almost €120m (2018: €52m per investment).

The largest portfolio sales in 2019 included:

  • the sale of the Hilton and Hilton Garden Inn Frankfurt Airport as part of ‘The Squaire’ in the fourth quarter. The entire building was sold by Office First to a joint venture of the investment company AGC and the South Korean financial service provider Hana. The hotel accounted for an estimated 35-40% of the total transaction volume (approx. €940m).
  • a pan-European portfolio comprising 11 hotels, of which two are located in Cologne and one each inDüsseldorf, Berlin, Hanover, Leipzig and Kiel, sold in an off-market deal by Principal Real Estate to AXA Real Estate for approx. €545m. JLL acted as the adviser to AXA.
  • the sale of the HR portfolio for €290m in the fourth quarter. The seven German hotels with a total of 1,532 rooms, situated in Frankfurt, Munich, Stuttgart, Bad Neuenahr and Schweinfurt, were sold in a sale-and-lease-back deal to Pandox. The German HR Group has retained a 5.1% stake, and there are plans for a comprehensive joint investment programme.
  • the purchase of the ‘Tafelhof Palais’ development in Nuremberg by BMO Real Estate Partners in the second quarter. Leonardo Royal and Motel One have already been secured as tenants for the development projectwhich is scheduled to open in 2021. The seller of the development was Hubert Haupt Immobilien Holding.

Foreign investors doubled their capital investment in 2019

Significantly more domestic than foreign players engaged in investment activity, venturing €2.5bn (2018: €2.8bn) into 59 transactions. However, foreign investors tended to focus on large-scale transactions, with seven in the three-digit-million range (2018: two), and were able to increase their total investments by 108% year-on-year to about €2.3bn. Swedish investors accounted for four transactions with a combined volume of €490m. French players were next (about €483m), but with double the number of transactions. British investors invested a total of almost €290m in four transactions. “The large proportion of foreign capital this year was driven by the increased availability of existing hotel portfolios as well as assets in prime locations,” said Schmidtke.

Institutional investors were the most active, accounting for 51 transactions. They invested a total of over €3.2bn, followed by property companies (€810m, 13 transactions), private equity and REITs (€315m, seven transactions), and hotel operators (€206m, nine transactions). Private individuals and developers accounted for a volume of €278m (in 14 transactions).

Schmidtke concluded: “The combination of a huge amount of capital seeking investments, the continuously attractive interest rate environment, the shortage of supply in top cities with rising prices and greater acceptance of the need to switch to secondary and tertiary locations has driven the transaction volume to a very high level. Investing in real estate remains a highly attractive option. There seems to be no other alternative to real estate as an investment. Specialised hotel funds are increasingly being established by investment companies or institutions attracting other investors to participate. In addition, new concepts are proving attractive to investors. Branded residences, a further evolution of the temporary living concept that is already being practised in micro-apartments or serviced apartments, could be a further logical step to achieve greater differentiation and lure investors with the promise of potential value optimisation. Through a cooperation between developers, operators and hotel brands, a new form of living would emerge, which would serve the more sophisticated needs of condominium owners. Properties of this type are either operated by well-known brands themselves or they put their brand at the disposal of an operator. In Berlin and Frankfurt, the ‘Tower Apartments’ near the Ritz Carlton and the ‘Riverpark Tower’ project development come closest to this concept.

In summary, we believe that the German hotel investment market is in a good position for 2020. As things stand, with demand forecast to remain robust in 2020 — potentially boosted in the first half of the year by the postponement of the land transfer tax reform for share deals— we do not expect to see another record result. We currently assume that the transaction volume will be in line with the five-year average of around €4bn.”

About JLL

JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. Our vision is to reimagine the world of real estate, creating rewarding opportunities and amazing spaces where people can achieve their ambitions. In doing so, we will build a better tomorrow for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $16.3 billion, operations in over 80 countries and a global workforce of more than 93,000 as of September 30, 2019. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit