The COVID-19 pandemic has, as expected, led to a hefty fall in the transaction volume of German hotels, after what was looking like a strong start to the year in Q1. That has all changed over the ensuing months, as new data released by property advisers Cushman & Wakefield show.
The German hotel market recorded a total transaction volume of €1.3 billion in the first half of 2020, a decline of 11% compared to the previous year. After a strong first quarter with a transaction volume of €1.0 billion, the second quarter saw a significant regression to around €317 million due to corona. The volume in the last three months was thus almost three times below the level of 2019 (Q2 2019: €860 million).
German buyers were responsible for almost 60% of the transaction volume over the first half. A relatively high share was accounted for by Aroundtown's 77.5[in TLG with a total of eight hotels as well as the sale of four Aroundtown hotels to the French investor Primonial REIM. Both transactions represent approximately 35% of the total transaction volume.
Among the largest transactions in the second quarter were:
- The sale of Dutch holiday park operator Roompot from PAI Partners to KKR for approximately €1 billion. Among the 33 holiday parks owned are two holiday resorts in Cochem on the Moselle and Bad Bentheim.
- The sale of the 180-room Meliá Innside Premium in Dresden to European Property Holdings (EPH), which is listed on the Swiss stock exchange. The sellers were Norpexal Holding SA and Fibona GmbH. The building is leased to Meliá Hotels International until 2029.
- The sale of the Nhow Hotel in Berlin with 304 rooms by Jesta Group from Canada to European Property Holdings (EPH). The lease agreement with NH Hotels has a remaining term of approx. 15 years.
- The purchase of the Park-Hotel Egerner Höfe am Tegernsee by the Allgäuer dairy entrepreneur Christian Ehrmann. The 98-room house was previously owned by the von Moltke family, who managed the house themselves.
According to Stefan Giesemann, Head of Hospitality Germany and Austria at C&W, "The sharp decline in the second quarter was marked by the Covid 19 pandemic and its impact on the transaction market. Numerous processes were paused or postponed indefinitely during this period. Nevertheless, the majority of institutional investors continue to consider hotels as an asset class, either by discounting prices or by focusing on core properties.
“In addition, more attention is also being paid to the creditworthiness of tenants, the guarantee package and the amount of the lease. In recent weeks, we have seen an initial slight recovery in the markets, albeit at a low level. There are currently some transactions on the market, so we will certainly see increased activity again in the second half of the year, although not yet at a normal level."
CBRE also delivered figures for the first half-year investment in hotel properties, which differ slightly from C&W (often a question of definition). But the essential message is the same. According to their report, their segmentation shows that the focus of market activity in the first half of the year was on three- or four-star properties, which together accounted for more than 90% of market activity. While four-star properties were able to maintain their market share of 58% compared with the previous year, three-star hotels not only expanded their market share by eleven percentage points to 33%, but were also the only star category in which the transaction volume also increased in absolute terms.
The most active single market in the first half of the year was Berlin at €296m. The Top 7 cities together accounted for €622m, about half of the total hotel investment volume in Germany. This represents a decline of 30% compared to the first half of 2019.
CBRE’s head of hotels, Olivia Klaussen, said, “Our discussions in the market show that most players are convinced of the medium to long-term attractiveness of the hotel real estate asset class. However, the fairly large project pipeline could become a challenge for the market, as most new properties are likely to be completed before the market fully recovers.
“One consequence of the pandemic, however, will be that investors will focus more on the issues of operating risk, liquidity and creditworthiness of the operator. In addition, operators will aim to share future pandemics and similar risks with investors by contract from the outset".
Meanwhile, the operators of 600 hotels in Germany have written an open letter to Chancellor Angela Merkel demanding that the protection given against any notice being given on commercial leases be extended until September 30th, in the light of the losses suffered in the wake of the corona pandemic.
Despite several hotels having re-opened their doors in recent weeks, the hoteliers – an association of several large hotel chains - claim that the basic occupancy rate is still too low to be able to fully meet all contractual obligations.
On average, a hotel pays between 50,000 euros and 300,000 euros rent per month - depending on location and size. However, most landlords – primarily those representing institutional investors – have resisted negotiating any adjustment to their agreed rents.
The COVID-19 law introduced by the government has done the hotel industry a disservice by upholding the maintenance of the basic obligation to pay rent. However, the lockdown has deprive commercial tenants of the means to earn back these rents, while the situation is aggravated by the fact that most landlords are now also threatening to foreclose on any collateral, further circumventing the protection against summary dismissal and the deferment of rental payments that the law was intended to prevent. While rents were due on July 3rd, industry representatives are demanding a further postponement.
The group, known as Initiative Deutsche Hotellerie, consists of: Centro Hotel Group, Deutsche Seereederei, Dorint Hotel Group, Dormero Hotel Group, GCH Hotel Group, GS Hotel Group, H-Hotels, Leonardo Hotel Group, Novum Hotel Group and Tripp Inn Hotelgroup.
