As Before the Boom: Hotel Investments Need Specialists

As Before the Boom: Hotel Investments Need Specialists

21.05.2021 Author/s: Andrea Back-Ihrig

What's next for new hotel construction in Germany? Of the 34,000 rooms forecast for 2021, only 680 had been completed by February 2021. This was the result of the hotel study for our client benchmark. Construction activity continues to shift to B- and C-locations and tourist-driven regions. Long-stay concepts also benefit,

What is the future of this emerging asset class, which was highly favored by project developers and investors before Corona and has now been put in a damper? Some hotel developers want to make changes of use and build office space instead of hotel rooms, for example. Others have for some time been increasingly focusing on the construction of serviced apartments, which seem to be coming through the crisis better than classic full hotels. Many also see good development opportunities in the vacation hotel industry, which already proved much more robust than the city hotel industry during the financial crisis. Project developers are looking for sustainable solutions. In view of this, the hotel development market is currently reorganizing itself.

Currently, the hotel market is developing back to what it was a few years ago: a market for specialists. The Germany-wide study for benchmark. REAL Estate is based on an analysis of construction activity in the hotel segment for new buildings with at least 40 rooms.

Even the kettle stays cold: At the end of 2020, demand for tourism in the German accommodation sector was 39% below the previous year's level at around 302 million overnight stays.

These are the key findings:

Significant decline in completion volume

The number of completed hotel rooms has declined from about 21,500 rooms in 2019 to 20,277 rooms in 2020. In 2021, the completion volume could decline further. For example, of the 34,000 rooms originally forecast for this year, only 680 had been completed by February 2021.

Construction activity continues to shift

As in 2019, most hotel rooms in 2020 were no longer being built in A-cities. B, C, D and resort locations expanded their market share. In the future, new hotel developments in German vacation regions will become an even greater focus for developers. This is potentially at the expense of city, trade fair and airport locations, which have been severely affected by the pandemic. Around one in ten hotels in planning or under construction with expected completion by the end of 2022 is located in a vacation region. If other cities are included in the calculation, one in four planned hotel rooms in 2022 will already be outside the A to D cities.