Lack of investment grade product – double-digit decline in transaction volume on hotel investment market
FRANKFURT, 10th July 2019 – At the end of June 2019, the transaction volume on the hotel investment market* was significantly below the half-year result of the previous year. After just €600 million was invested in this asset class during the first three months of the year, the volume did increase by 45% in the second quarter to approx. €870 million. However, in the first six months as a whole, investments were still 20% lower at €1.47 billion. This figure was also more than 10% (-14%) below the five-year average. “The transaction volumes of the years from 2015 to 2018 are now a thing of the past. Furthermore, the somewhat dismal number of transactions at 39 in total could point to a drastic fall in demand. Fortunately, however, the pure statistics do not reflect the genuine interest of investors. Many would like to invest their capital in hotels but are unable to find a suitable product. This situation particularly applies to existing properties in central locations with long-term leases,” said Stefan Giesemann, Executive Vice President of the JLL Hotels & Hospitality Group. Giesemann added: “Most of the markets show a solid performance with encouraging figures for overnight stays. The driving forces here are the booming tourism sector and the zero interest rate policy, which gives buyers a reasonable return even with rising prices.”
Institutional investors made 18 investments and again represented the most active group with a share of about 55 % (corresponding to around €800 million) of the overall volume, followed by property companies (€190 million and seven transactions) and hotel operators (€172 million and three transactions). The other investor groups including private equity firms, private individuals and REITs accounted for a total volume of €306 million and eleven transactions.
Single-asset transactions (33) generated a total of €950 million in the first six months. Compared to the previous year, this corresponds to a decline of about 37% (H1 2018: €1.51 billion with 47 transactions). The focus was on numerous small transactions. As a consequence, the average size of a transaction fell by around €3 million to approx. €29 million. Owing to the supply shortage, a high proportion of transactions (about 40%) related to forward deals, whereby hotels are acquired while still in the development phase. “However, with transactions such as these investors may experience postponements and construction delays until the completion of the property because developers and contractors are working at full capacity. The risk presented by these uncertainties cannot be dismissed,” said Giesemann.
The largest single-asset transactions in the second quarter include:
- the sale of the Kimpton Hotel in Frankfurt with 155 rooms as part of the “Four Frankfurt” high-rise complex to Commerz Real’s “Haus Invest” open public fund. The turnkey handover is scheduled for 2024. The investment volume in the high-rise buildings including 1,000 sqm of commercial space was just over €100 million. The seller was the project developer Groß & Partner.
- the divestment of the Niu Kettle project development in Vaihingen/Stuttgart to Barings Real Estate. Developments on the 5,000-sqm plot include a 200-room Novum Hotel under the Niu brand with an expected completion date of December 2020 as well as the new headquarters of Stuttgart auditor HWS with 3,700 sqm. The seller was the developer weisenburger projekt GmbH.
- The acquisition of the ibis Styles Hotel Stuttgart by the “Core Budget Hotel“ fund of Art-Invest Real Estate. The hotel in Bad Cannstatt has156 rooms, was opened in 1993 and will be operated on the basis of a long-term lease agreement with the Success Hotel Group.
- the sale of Hotel Europa in Ludwigshafen with 131 rooms to the Dr Peters Group. The seller was the Benke family. The hotel will be operated under the Tulip Inn brand in future.
Portfolio transactions accounted for almost €520 million (six investments) in the first six months, a 45% higher volume than the same period last year (H1 2018: €357 million, seven investments).
Sales in the second quarter included:
- the Leonardo (238 rooms) and the Motel One (500 rooms) as part of the “Tafelhof Palais” development in Nuremberg by Hubert Haupt Immobilien Holding to BMO Real Estate Partners. The completion of “Tafelhof Palais” including 12,400 sqm of office space is scheduled for the start of 2021.
- three Dorint Hotels with a total of 565 rooms in Dortmund, Augsburg and Erfurt to the Swedish hotel investor Pandox. The investment volume amounted to around €103 million. The seller was the HR Group, which will lease back the hotels for 20 years as part of a sale and leaseback arrangement. The seller and operator also retains a minority stake of around 5.1%.
- five hotels with more than 1,000 rooms in Hamburg (three), Schwerin and Zwickau to the Heilbronn hotel operator Plaza Hotelgroup. Plaza Hotelgroup has already operated the hotels for several years under a lease arrangement.
German players again accounted for the bulk of investment activity in the second quarter. Their share of the transaction volume was just under 60%. Well-capitalised foreign investors came into play particularly in the case of investments above €50 million (50% of all investments over €50 million). Investors from the United Kingdom (€155 million) represented the leading foreign players, followed by investors from the USA (€115 million), Sweden (€103 million) and Singapore (€50 million).
Giesemann concluded: “The hotel investment volume reported at the mid-year point of 2019 does not reflect the sentiment that is apparent during our discussions with investors. The mood is mostly positive and the pressure remains high to deploy capital. In this respect many institutional investors, including international capital sources, are increasingly focusing on forward deals / project sales due to the lack of existing product for sale. However, developers are becoming now slightly more cautious due to rising building costs and lower margins. Nonetheless, we expect a solid demand and activity across the market for the remainder of the year with a couple of larger deals expected to close by year-end. For the full year 2019, JLL currently forecasts an investment volume at around €3 billion which is ca. 25% below the five-year average.”
* The Hotels & Hospitality Group of JLL, Germany, includes single-asset transactions with an investment volume of at least €5m and portfolio transactions with properties only in Germany. Also included are German hotels that are sold as part of cross-border portfolio sales.
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