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25 August 2017 | Hotels

Hotel Markets on the Rise in Germany's coastal Cities

German coastal cities such as Flensburg, Kiel, Bremerhaven, Rostock and Lübeck, which attract holidaymakers, city tourists and business travellers in equal measure, offer high potential for hotel investors.

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Mindful of the shortage of supply, institutional hotel investors are increasingly avoiding A-level sites – and according to hotel property specialist Christie & Co, the focus is switching to German coastal cities.

Christie & Co believes that cities such as Flensburg, Kiel, Bremerhaven, Rostock and Lübeck, which attract holidaymakers, city tourists and business travellers in equal measure, have the greatest potential for investors. Indeed, the hotel markets in all of these cities have developed well over recent years, with tourism expansion outpacing the national average. No wonder hotel investors are keen to benefit from the success story of these cities. Early in the year, for example, the British investor Internos Global Investors acquired the Steigenberger Hotel in Kiel, while only recently the German branch of French fund LFPI purchased the 81-bedroom Hotel Excelsior in Lübeck – a deal brokered by Christie & Co.

In the view of Christie & Co, Flensburg still has scope to increase its supply; Germany’s northernmost city benefits not only from strong domestic demand, but also demand from abroad thanks to its border location. Visitors from abroad actually account for 41 percent of overnight stays, with the majority of travellers coming from Scandinavia. Danish tourists in particular value the range of hotels and prices that are lower than those in Denmark. Additional demand is generated by Flensburg-based enterprises such as Flensburger Brauerei, Beate Uhse and Krones AG as well as the Federal Motor Transport Authority and the popular Flensburg Fjord. Between 2012 and 2016, Flensburg reported exceptional increases in arrivals and overnight stays of around eight percent per year on average. By comparison, arrivals in Germany rose by an approximate average of three percent over the same period, with overnight stays in all accommodation establishments up 2.4 percent per year. Between 2012 and 2016, the total number of overnight stays in Flensburg rose almost three times as quickly as the supply of beds.

Lübeck, the second largest city in Schleswig-Holstein with over 216,000 inhabitants, is also developing encouragingly. The beaches of the Bay of Lübeck are extremely popular during the summer, while the historic old town – a UNESCO World Cultural Heritage site – attracts tourists in their droves every year. In economic terms, Lübeck benefits from the presence of the largest port operator on the Baltic, which has 700 employees. These trends are confirmed by the figures; while the number of beds on offer increased by 8.2 percent between 2012 and 2016, the number of overnight stays rose by a total of 24.5 percent, from approximately 1.33 million to 1.65 million. Demand in the Hanseatic City of Schleswig-Holstein has therefore risen three times as rapidly as the supply of beds. Over the period in question, the number of overnight stays has risen by roughly 5.6 percent on average, with arrivals up by around four percent.

Rostock sits at the top in terms of the intensity of tourism (i.e. number of overnight stays per thousand inhabitants), with the Mecklenburg city on the Baltic generating 9.4 overnight stays per inhabitant; by contrast Kiel, a city of similar size in terms of population, brings up the rear with just 2.7 overnight stays per inhabitant.

Stephan Brüning, Senior Consultant Investment & Letting at Christie & Co’s Berlin office comments: “Demand for hotel properties in Germany – whether vacant or on a long-term lease – remains high. Thanks to the positive development of tourism and a stable political and economic situation, the Federal Republic is still the touted safe haven for investments.

“That said, the supply of attractive investment opportunities is becoming ever more limited in the major cities. As a result, B and C-locations are coming under more intense scrutiny by investors. Given the lack of available data, however, it is hard to predict the best destinations in which to invest. The determining factors are diversified demand generators and a positive economic development.

“We are seeing particularly strong demand from German and international investors in Lübeck und Flensburg, where we are currently engaged in projects. These cities are definitely worth a closer inspection, as the economic data and population figures have been on the up for some years.”

Jebo Samuels, who is also a Senior Consultant Investment & Letting at Christie & Co’s Berlin office, adds: “These locations have three main advantages. Historic ports and the cultural facilities often connected with them create high levels of private tourism. At the same time, port industries are driving business tourism and demand in the MICE segment. The third plus point is the waterside location and the links to waterways, which increase the proportion of tourists from abroad.

“All the port cities we analysed have the potential to build on various economic sectors, which will put tourism on a strong footing – and, up to a point, without the strong pressure on yields we see in the top six German locations.”