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31 January 2017 | Hotels

Prospects for German Hotel Investment Market remain positive

2016 was a very successful year for the German hotel investment market. The supply of hotel properties has increased, is however lagging behind demand. The outlook for 2017 remains positive.

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The German hotel investment market remains a seller's market, according to Christie & Co's most recent Business Outlook. As before, the supply of first-rate hotel properties is lower than demand. Above all, German institutional investors as well as pension funds and foreign investors are currently interested in German hotel properties, so the outlook for 2017 is positive.

As in the years before, demand exceeded supply. The resulting pressure on yields made it more attractive for hotel owners to sell their assets. In turn, as prices have increased, there has been more incentive for project developers to bring new hotels to the market. As a result, supply of hotel properties has also gone up, but is lagging behind demand.

Overall, hotels in Germany looked back on a highly positive operational performance in 2016, as room occupancy, ADR and RevPAR were excellent. As some UK banks are thinking about basing themselves outside of the United Kingdom after Brexit, and with most large German cities reporting rising foreign visitor numbers, Christie & Co expects the positive performance trend to continue throughout 2017.

Lukas Hochedlinger, Managing Director Germany, Austria & CEE at Christie & Co, comments: “The past year was another very successful year for the hotel investment market in Germany. We saw strong demand from domestic buyers, including in particular institutional investors, as well as European, US and Asian funds.

“For new hotels coming to the market, it is essential that they are not only built for investors, but are also needed and absorbed by the respective market.

“In light of Brexit and the perceived terrorist threat across Europe, Germany has, for a long time, been considered a safe haven by investors. This is why properties in Europe's largest economy were in strong demand. If and to which extent the terrorist attack in Berlin in December 2016 will have an impact on tourism numbers and investment market sentiment remains to be seen.”

“There is talk in some media about a potential real estate bubble in Germany. Time will tell if this is true. For now, we see a positive tendency in the market, with many new hotels opening and many new brands venturing their market entry. Unless anything unexpected happens, the strong sentiment in the market should continue for a while.”