German hotel market volume stable thanks to new builds

Even though the German property investment market as a whole continues to be burdened by the changed interest rate environment, sentiment has recently brightened again, particularly in the hotel segment. According to calculations by Union Investment and bulwiengesa, the market volume of hotels relevant to institutional investors increased slightly in 2023 despite the unfavourable signs: at the end of 2023, it stood at around €62.0 billion, around 0.6% above the previous year's figure (€61.6 billion).

Growth of around EUR 1.3 billion due to the completion of investment-relevant hotels in 2023 had a value-increasing effect, while the value of the hotel stock across Germany fell slightly by around 1.5% compared to the previous year. Following the economic recovery from the consequences of the coronavirus crisis, the hotel segment was therefore unable to escape the interest rate-related value adjustment entirely. However, the overall good performance figures in the hotel industry, particularly the increase in average room rates, the rise in RevPar and the increase in occupancy rates, have helped to stabilise hotel property values.

Peak in total market volume

Numerous hotel completions took place in 2023, which was also supported by the postponed completions from the two coronavirus years. According to bulwiengesa's Development Monitor, more than 13,000 new rooms were added to the market in Germany in 2023, a good two-thirds of which are attributable to the segment relevant to institutional investors. This brings the investment-relevant market volume to a good €1.3 billion, which is why the total market volume reached a new high despite a slight decline in the value of existing properties.

Values at a glance:
Year 2021 2022 2023
Market volume 56.0 billion 61.6 billion 62.0 billion
(in euros)
Change compared to
previous year +0.5 % + 10.0 % + 0.6 %

The calculated value per room, which is calculated by dividing the hotel market volume by the number of investment-relevant hotel rooms, has risen to around EUR 145,500 compared to 2022, but is still below the average value of the peak year 2019. The calculated value ranges of a hotel room range from an average of EUR 130,200 in the budget/economy hotel industry to EUR 267,000 per room in the upper upscale hotel industry.

Increase in overnight stays

This development goes hand in hand with the positive trend in tourism figures nationwide - the tourism demand of the peak year 2019 was only just missed in 2023 with around 487.2 million overnight stays (+8.1 % compared to the previous year). In addition to domestic guests (+6.2 %), whose demand has already slightly exceeded the 2019 level, this growth was primarily driven by overnight stays by foreign guests (+18.9 % compared to 2022). After strong growth was recorded in domestic holiday regions in the coronavirus years, particularly in the core tourist regions on the coasts and in the Alps, there is now also a clear recovery in city tourism. In 2023, for example, the number of overnight stays in Hamburg, Munich and Düsseldorf has already exceeded the 2019 figures. Despite virtual formats, the trade fair and congress business is also picking up again, as can be seen in Frankfurt, for example. Although the volume of overnight stays there in 2023 was still -4.0% below the pre-coronavirus level, it was able to catch up significantly year-on-year at around +20.0%. The German tourism industry is experiencing a boost in the current year, not least due to the European Football Championship.

Hotel market diversifies

Due to the change in the interest rate environment, the volume of new hotel construction is likely to decline overall in the coming years. However, the geographical distribution of the hotel projects surveyed by bulwiengesa shows that, in addition to the attractive major cities, developers and investors are increasingly focusing on holiday regions and small/medium-sized towns away from the top destinations. The number of investment-relevant hotels in smaller cities has risen (approx. one third of the room volume completed in 2023). This is not least a consequence of the expansion of well-known brands into the area, as the main markets are largely occupied and expansion opportunities are still opening up there in particular. Destinations previously dominated by the small-scale private hotel industry are increasingly being discovered by national and international brands. This is accompanied by a greater diversification of brands. On the demand side, the classification of the product is receding into the background. Instead, the choice of hotel is increasingly influenced by the individual concept and style, which is reflected in the growing importance of boutique hotels and long-stay concepts such as those of the Staycity Aparthotels or Adina Apartment Hotels brands.

"Hotel concepts are an important building block in the current transformation processes from city centre retail and office properties to mixed-use properties," says Andreas Löcher, Head of Investment Management Operational at Union Investment. "This is increasingly opening up development prospects, particularly for innovative hotel concepts and attractive niche products, which are also of great interest to institutional investors."

Transaction market likely to stabilise

Transaction activity on the German hotel investment market was subdued in 2023, as in all other asset classes, due to the change in the interest rate environment. For the remainder of 2024, Union Investment and bulwiengesa expect the transaction market to pick up due to the convergence of price expectations between sellers and buyers, the decline in inflation and the stabilisation of interest rates, as well as the very positive development of key performance indicators in the German hotel industry. The prospect of declining hotel completions due to more difficult financing conditions should also have a stabilising effect on the value of existing hotel properties. Andreas Brode-von Mühlenfels, Senior Consultant for hotel and leisure properties at bulwiengesa: "In the future, we expect market values to stabilise and focus on investments in existing properties."

About the market value model

The market value model from Union Investment and bulwiengesa is based on data from companies, public statistics and hotel associations. It enables a comparative analysis of the institutional hotel market volume from 2007 to 2023, with value-determining factors including the number, location and category of German hotels and their performance.