- H1 transaction volume at €1.3bn, down over 20% yoy
- Few high-volume deals signed in Q2
- Portfolio deals and takeovers dominate market
- Investors adopt wait-and-see stance due to pandemic, financing environment remains critical
- Outlook: Risks become more manageable; market activity slowly regains momentum
Berlin, 10 July 2020 – According to Colliers International, the German hotel investment market posted roughly €1.3bn in transaction volume in H1 2020. Although these results are down 21% yoy, they are still 7% above the 10-year average. Hotel assets claimed a 5% market share.
René Schappner, Head of Hotel at Colliers International, comments, “The impact of the pandemic was quite tangible in Q2. Investors poured less than €270m into German hotel assets, the lowest quarterly result since early 2014. The lockdown has brought great uncertainty to the hotel business, causing everyone involved in the market to adopt a wait-and-see stance. With hotels closed and visitor numbers down drastically, a number of deals were put on hold in Q2 until the situation stabilizes. Any deals that were signed were typically initiated prior to the outbreak of the pandemic.”
Company takeovers boost portfolio share; very few high-volume single-asset deals
H1 results were significantly impacted by Q1 activity, in which company takeovers spurred market activity one more time prior to the pandemic. Investors poured around €650m, or exactly half of total transaction volume, into portfolios, compared to a mere €200m during the same period in 2019.
These results can primarily be attributed to Aroundtown’s takeover of the TLG portfolio in Q1, which included several hotel assets. Aroundtown also sold 4 business hotels to French investor Primonial. The only portfolio deal signed in Q2 was the takeover of Dutch holiday park operator Roompot, including two holiday parks in Germany. The portfolio was sold to US private equity firm KKP by French firm PAI Partners.
Only a few high-volume single-asset deals were signed in H1, the largest being the disposal of nhow Berlin. The asset, which is located at Berlin’s Osthafen, was acquired from Jesta Capital Trust by Swiss investment company Eastern Property Holdings. Aside from this major deal, small-volume private transactions tended to dominate market activity, particularly in Q2.
Foreign investors continue to exercise restraint
Foreign investors remained hesitant in their market activity. Although they did manage to account for a high market share in H1 of 53%, or €700m, this result can primarily be attributed to the Aroundtown and Primonial portfolio deals.
German investors again proved dominate sell-side, disposing of hotel assets valued at over €1.1bn to claim a market share of 86%, up 7% yoy. Canada and France were the largest sources of capital after Germany.
Transaction volume evenly distributed among top 7 cities and secondary and tertiary locations
The trend towards investing in locations outside Germany’s 7 top investment hubs continued in H1. Roughly half of total capital (€640m) was invested in cities other than the Big 7. The Hampton by Hilton in Kiel, which BVK acquired within the scope of a forward deal was the highest-volume deal signed in these other markets. Transaction volume in the country’s top 7 cities remained stable yoy at roughly €660m, or 51%.
3-star and 4-star hotels head investor agendas
3-star and 4-star hotels again drew the bulk of market activity in H1 2020. 4-star hotels claimed 57% of total transaction volume, or around €740m, followed by 3-star hotels with 34%, or €440m. Activity around serviced apartments remained stable at around €70m with market share down to 6%. 2-star and 5-star hotels trailed with about €30m each.
Listed property companies continue to dominate buy-side
The TLG takeover also determined the buy-side breakdown in H1, boosting the market share of listed property companies to 32% compared to 11% in the previous year. Asset and fund managers were able to maintain their previous year’s 2nd place with roughly €270m, or 21%. Open-ended real estate funds and special funds were noticeably tentative, acquiring roughly €100m in hotel assets compared to almost €600m in H1 2019.
Property developers hold back on market listings
Property developers were most active sell-side with €320m, or a market share of 25%. These two figures, however, are significantly under the almost €900m, or 54%, posted in H1 of the previous year. The share of forward deals was down as well, highlighting the hesitation seen among property developers during the lockdown. Listed property companies with just under €300m (23% market share) and asset and fund managers with over €220m (17%) followed in the ranks.
Yields stable, core assets in demand, possible risk premiums in value add
Despite the small number of deals signed, investors continued to show interest in value-stable core assets, causing prime yields to remain stable for the time being. Prime yields currently range from 3.70% in Munich to 4.40% in Berlin. “We do not expect to see any significant changes when it comes to prime assets. However, we may be seeing considerable risk premiums being priced in for value-added products,” René Schappner predicts.
Outlook: Risks becoming more manageable; market activity slowly picks up pace
Although the slowdown caused by the pandemic was quite tangible in Q2, the hotel market as a whole is in stable condition. With domestic travel restrictions now lifted, German holiday destinations are particularly in high demand and, as the number of flights continues to rise, the country will soon again be hosting a growing number of international visitors.
Limited transaction activity can therefore not be pinned down to lack of interest in the asset class. “The risks involved in hotel investments are lessening as travel activity begins to normalize. Hotel assets continue to claim a place on many investor agendas and are also being preferred as a component in mixed-use assets. While property developers have refrained from listing properties due to the uncertain market and financing environment, they nevertheless continue to tackle new projects in collaboration with operators looking to expand. The challenging financing environment around hotel investment will gradually improve and market activity will again pick up once the current uncertainties become manageable. Signs of this renewed activity were already becoming apparent in late Q2,” René Schappner concludes.