Hotels – one of the largest woes of the German real estate market

Despite headwinds, Germany has proven to be one of the most active European investment markets during the crisis.

October 08, 2020

FRANKFURT, 08 October 2020 – The statistics speak for themselves. In the first nine months of the current year, the German hotel transaction market* recorded a volume of €1.7bn involving 48 transactions, 25 percent up compared to the previous year. The year to date volume was clearly driven by a strong first quarter during which €1bn were transacted, representing over four times the Q2 volume (€260m) and twice as much as achieved in Q3 (€440m). Despite the surge in transactions in the third quarter, the actual volume shows a substantial cutback in comparison to the same period in 2019 (-46%).

This sober result fell short of both the 5-year and 10-year average (based on YTD Q3), by -39% and -10% respectively.

“Even with Germany being Europe’s most active hotel investment market, the hotel asset class represents one of the German real estate market’s agonies. The situation is even more tense in other established European markets. Hotel operations have recorded severe losses and the occupancy situation is threatening, which unsurprisingly, is reflected in the transactional volume”, says Heidi Schmidtke, Managing Director der JLL Hotels & Hospitality Group. Schmidtke continues: “Many transactions that were completed in Q3 were initiated and close to signing well before the outbreak of COVID, and thus only needed to cross the finish line. Luckily, this was achievable in some cases.”

A deluge of distressed sales is yet to be seen with the bid-ask gap still at a considerable level. “Whereas buyers expect price discounts due to the limited availability of bank financing and the moderate market outlook, sellers are not willing to accept such discounts unless absolutely necessary. Up until now, alternative options seem to have been available” according to Schmidtke.

Single asset transactions amounted to a volume of €1bn involving 41 transactions in the first nine months of the year, denoting a reduction of 28 percent compared to the same period last year. The average size per single asset transaction declined from €30m to €24m, reflecting the trend to smaller deals as initially witnessed in Q2 2020. Forward sales continue to serve as a significant driver equating to €400m across 13 transactions (c. 24 %).

The largest single assets transactions in Q3 were:

  • The sale of the Leonardo Royal Berlin Alexanderplatz to Art-Invest. This transaction was the first to be initiated and completed during the pandemic. The seller was the Israeli hotel group Fattal.
  • The disposal of the Innside by Meliá Dresden to Eastern Property Holdings (EPH). The hotel, which is subject to a lease agreement with Meliá and a lease term ending in 2029, was sold by Norpexal Holding SA and Fibona GmbH.
  • The forward sale of the Ruby Luna Dusseldorf as a part of the Medicus portfolio that Union Investment recently acquired for its newly set up special fund. The portfolio included a total of six mixed use assets in Düsseldorf and Berlin. The seller of the portfolio was Hines.
  • The acquisition of the Dorfhotel Sylt, now trading under Tui Blue brand, by Land Union Gruppe. GBI was the seller and originally purchased the asset from Lloyd Fonds in early 2019.
  • The disposal of the ibis Styles Perlach Plaza München to KGAL as a part of the mixed-use asset Perlach Plaza. The complex was sold for ca €250m with the hotel share estimated to be in the lower double-digit range. The asset, which is currently under construction, was sold by Concrete Capital and BHB.

Portfolio sales between January and September amounted to some €700m, corresponding to a double-digit decline of 24% in comparison to the same period last year. The average portfolio size was equivalent to approximately €100m and as such some €14m lower than in 2019. Transactional activity in Q3 mirrored the preceding quarter with only one portfolio sale.

Institutional investors were the most active buyer group, comprising 20 transactions with a volume of €815m. Real estate companies realised four deals accounting for over €430m whilst private investors completed twice as many transactions worth €138m.

Heidi Schmidtke analyses the overall situation: “A range of trends is dominating the hotel investment landscape. 90 percent of total investment volume in Q3 was originated by German investors. The strong domestic activity goes hand in hand with travel restrictions and the inability for site inspections to take place. This mirrors the European trend that investors are either based or represented in the countries they plan to invest in.” Schmidtke continues: “In terms of product, central locations foreseen to be the first in line for recovery are the main focus of investors. The alternate use consideration is a key aspect, not only for assets still under development, such as in the case of the FAZ Towers, but also for smaller tickets that lie below the €5m hurdle. In Q3, many of the assets in this low price range were acquired with the purpose of a residential conversion. We assume that this trend will cultivate and expand to larger assets. Another distinguishing aspect is the flourishing awareness investors now have for leisure hotels. Due to its seasonality and restricted alternative use, this type of hotel asset is yet to become an established investment alternative.”

Schmidtke concludes: “We are facing interesting times with a clear anticipation for further consolidation, such as in the case of the reported conversations between Accor and IHG. More will follow. Wrapping up: Based on our conversations with investors and the developments to date, our expectation for the remainder of the year is that the last quarter will not supersede the strong first three months of the year. If all goes well, the full year transaction volume might get close to half of the volume achieved in 2019 (€4.9m), thus marking one of the weakest years since 2013.”

*The Hotels & Hospitality Group of JLL, Germany includes single-asset transactions with an investment volume of at least €5m as well as portfolio transactions with properties only in Germany. German hotels sold as part of cross-border portfolio sales are also included.

About JLL

JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. JLL shapes the future of real estate for a better world by using the most advanced technology to create rewarding opportunities, amazing spaces and sustainable real estate solutions for our clients, our people and our communities. JLL is a Fortune 500 company with annual revenue of $18.0 billion in 2019, operations in over 80 countries and a global workforce of nearly 93,000 as of June 30, 2020. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated. For further information, visit