While most eyes in Europe were on the UK in the wake of Chancellor Rachel Reeves’ debut budget, and in anticipation of a further Bank of England rate cut, Germany stole the headlines as its fragile coalition fell apart when Olaf Scholz fired his finance minister, Christian Lindner. Snap elections are likely to follow in the coming months.
But Europe’s traditional powerhouse and the third largest economy in the world after the United States and China has been displaying signs of economic and political fragility for some time, leaving some hospitality investors in wait-and-see mode, while others seek to exploit market dislocations. Nearly €1 billion of hotels have changed hands in the country between January and September of this year, according to Christine Mayer, head of hotel valuation Germany & Austria at Cushman & Wakefield, who says that dealmaking has improved as the year has gone on. She notes that the last two quarters have been dominated by “international investor transactions” suggesting “confidence in the German hotel market”.
Ongoing deals
Indeed, one of the biggest deals of the year took place in September, as BC Partners and Hova Hospitality acquired 30 German hotels in partnership with B&B Hotels from AccorInvest. The portfolio, comprising 2,308 rooms, is located in various cities across Germany, and will undergo a major refurbishment programme including energy upgrades. The entire portfolio will be operated by B&B Hotels going forward.
Says Konrad Stoebe, managing director at BC Partners Real Estate: "This major transaction is part of our drive to increase our exposure to the hotel market in Europe. After Edgar Suites, we are continuing to invest in this sector alongside our industry-leading partners, B&B Hotels and Hova Hospitality.
“The investment also represents a further attractive addition to our portfolio in Germany, where we continue to identify attractive opportunities across sectors."
Other major deals in the third quarter included Elliott Investment Management’s purchase of the 280-room Roomers Hotel, Autograph Collection in Munich from WP Carey, and Elliot Investment Management’s deal for the Max-Brown Hotel in Berlin.
The Signa insolvency saw Vivion pick up Berlin’s Femina Palais, while Noordkant Investment Partners bought the A-ROSA Collection Hotel Cêres am Meer in Binz on the island of Rügen, marking the debut deal of its newly launched special alternative investment fund for leisure-focused hotels.
Adds Mayer: “Operator-free sales and takeovers by owner-operators continue to characterise the transaction market. An increase in transaction activity is noticeable, albeit still at a restrained level.”
Troubled economy
The measured German investment data correlates with nearly three difficult years for its economic and political scene.
While the cracks started to show after Russia’s invasion of Ukraine plunged the state’s energy policy into ruin in 2022, Germany’s woes arguably run deeper. The inability to find a compelling successor to Angela Merkel, dovetailing with the rise of the far right, has been in part fuelled by years of dwindling competitivity in Germany’s manufacturing sector.
Geraldine Dany-Knedlik, head of forecasting and economic policy at the German Institute for Economic Research says: “Decarbonisation, digitalisation, and demographic change – alongside stronger competition with companies from China – have triggered structural adjustment processes that are dampening the long-term growth prospects of the German economy.”
‘We see various challenges in the steel, chemical and car industries – all strong pillars of the German economy,’ notes Henning Koch, CEO of Commerz Real, the asset management arm of Commerzbank. “Companies are thinking about taking part of their production to other markets. These industries need energy at reasonable prices, but energy is still a key issue. It feels difficult to deliver that and push the German economy in the right direction.”
He adds that he is “expecting a slightly negative growth environment this year”, which he describes as “simply not good”.
He notes: “Germany was always a safe haven in Europe for real estate investors, but I doubt that this is still valid. Investors rightly have question marks about how safe and how strong Germany is. It’s a tough environment.”
Commerz Real’s mammoth open-ended Hausinvest fund comprises around €17 billion worth of assets, of which some €1.7 billion is invested in hotels and hospitality. Koch says that the firm maintains its commitment to hotels in the present environment, trusting its experienced in-house team to manage deals and oversee operations. The business has two further institutional funds focusing purely on hotels; one has a global remit and is invested in Europe and Australia, while another Europe-focused fund is backed by H World International.
Commerz Real would also like to participate further in Germany’s energy transition, but Koch expresses some frustration around the investment parameters for renewables. “We’ve been pushing very hard to change the legislation so that real estate open-ended funds can buy renewables. The new law has not happened so far, so we need to be patient, we are waiting for that,” he notes.
Investment climate looking forward
These disparate facets of Germany’s fractured character all matter for the hospitality industry looking forward. Business hotels have been slower to recover in a climate of economic stagnation, on top of the post-Covid hangover for work trips, affecting acquisition strategies for cities like Frankfurt.
But in the leisure sector, not everything has been plain sailing. One hotel investor reports a “disappointing summer” despite Germany hosting the UEFA 2024 European Championships – “we expected higher occupancies that didn’t really materialise”.
While there is some hope that interest rate cuts from the European Central Bank could help support deal momentum and improve the financing environment, German banks remain cautious. Martin Schaffer at MRP Hotels suggests that “core investors face challenges” due to lending multipliers remaining on the low side and weakened appetite for development funding.
Analysts also warn that incoming president Trump could damage the country’s business outlook still further, should he enact the tariffs promised pre-election, currently estimated at 10 percent on imports. For Germany’s troubled automotive industry, already challenged by cheaper Chinese imports, further taxes could prove the final nail in the coffin after data showed last week that German car sales had slumped to the lowest point since lockdown.
Goldman Sachs analysts suggest that Germany’s GDP could shrink by a further 0.6 percent next year if its manufacturing is targeted by Trump policy. Other market watchers see the damage from Trump’s measures prolonging economic discomfort for the state over the medium term as well.
By Isobel Lee
