‘We have lived on substance for too long and neglected important reforms,’ said Andreas Glunz, KPMG Divisional Board Member for International Business.

According to a KPMG study ‘Business Destination Germany 2024’ 350 CFOs from the largest German subsidiaries of international corporations were surveyed. From their perspective, political stability (-22 percentage points), labour productivity (-17 percentage points) and logistical/physical infrastructure (-16 percentage points) developed more negatively. They also saw a setback in Germany's previous strengths, the research landscape (-13 percentage points) and the innovation-friendly environment (-8 percentage points).

The digital infrastructure, excessive bureaucracy and energy costs were also criticised as obstacles to investment.

‘Germany needs to massively reduce bureaucracy,’ Glunz pointed out.

Other reasons for the poor performance are the high tax burden, high labour, and energy costs. While politicians in Berlin are still arguing about an ‘economic turnaround’ or a ‘reform booster’, experts are alarmed as the number of foreign investment projects in Germany is falling.

Henrik Ahlers, Chairman of the Management Board at EY, fears that Germany is being left behind, while other European locations are developing much more dynamically, with France, for example, reporting a 20 per cent increase.

A detailed view of the industry is crucial

There are small signs of hope, however. The German economy grew slightly at the beginning of the year. According to the Federal Statistical Office, real gross domestic product increased by 0.2 per cent compared to the previous quarter. This modest growth was fuelled by an increase in construction investment and exports. Construction investment was supported by an unusually mild winter. In contrast, private consumer spending fell in the period from January to March. This casts a shadow over the German government's moderate growth hopes, which are largely based on a recovery in private consumption over the course of the year.

Looking at the travel sector, on the other hand, it quickly becomes clear that people are not cutting spending in this area.

“Despite all the challenges, travelling remain a central part of many people's lives in 2024, for which they are prepared to spend a lot of money,’ says Ulrich Reinhardt, futurologist, and Scientific Director of the ‘Stiftung für Zukunftsfragen’. International hotel investors also recognise this as an opportunity. Many of them see the hotel industry in Germany in a positive light, even if the sector is struggling with challenges. The strong performance speaks for itself with consistently good sales figures and the fundamental growth of the global tourism industry. This is a good time for us to make anti-cyclical investments, said Ascan Kókai, Head of Hotels at ECE Real Estate Partners.

Confidence slowly returns

According to surveys by BNP Paribas, the transaction volume in the property sector fell by 63 per cent last year. High loan-to-value ratios of German banks, extremely high sales factors and falling yields have put a lot of pressure on the German property market, says Bob Faith, head of the US investment manager Greystar Real Estate.

The topic on everyone's mind will be central bank rate cuts and the speed at which they begin to fall, hopefully kickstarting the transaction market again. Now, at least falling inflation rates and a gradually approaching price level are fuelling optimism, especially for the hotel asset class. Lisette van Doorn, CEO of the Urban Land Institute Europe, confirmed that this year's surveys also show that the market is slowly adapting to the new circumstances and that it is slowly being understood that this must also be reflected in prices. She also recognises the high refinancing volumes that are due shortly. Many investors are now consciously interested in alternative property sectors such as logistics and the hotel industry.

This is underlined by the research of Real Blue Kapitalverwaltungs-GmbH, the investment manager of the Drees & Sommer Group. They found that 69 per cent of institutional investors surveyed intend to invest in property again in 2024. Only just under 30 per cent were unable to specify a date. The most popular type of use was residential property at 79 per cent, with the special form of micro-living accounting for 17.2 per cent. There was also a lot of interest in logistics/light industrial with 41 per cent, while 28 per cent still want to invest in office property. Social properties such as daycare centres or educational facilities and care properties/senior living have increasingly come into focus with 24 per cent each, while hotels accounted for 10.3 per cent.

A buying year

The German hotel investment market is therefore likely in a buying year as confidence slowly returns and take-up rates continue to rise slowly. Investors have indicated too, that they see it as the right time to invest, after several years of reduced investment in hotels due to a string of economic shocks, starting with Covid-19 in early 2020. “Now it is the time to be actively investing in premium real estate”, said Holger Matheis, CEO of Swiss Life Asset Manager in Germany. He sees good opportunities especially as being a long-term investor.

Christine Fritz, Co-Portfolio Manager, European Core Strategy, PGIM Real Estate also sees the opportunities: ‘Hotels are also becoming increasingly interesting for core investors, especially in those cities with the highest number of overnight stays. The sector has recovered strongly since its Covid low. Revenue per available room (revpar), for example, is higher than in 2019 in some cases. However, some risks remain, such as increased operating costs and the sometimes high supply at local level. She sees the strongest demand from institutional investors for hotels in the midscale segment with high brand awareness and efficient operating processes.

ESG considerations

Another important point is the ESG aspect. More and more institutional investors are defining long-term investments not as a combination of maximum profit, but also the question of what an authentic consideration of the social or ecological consequences an investment can have. Like us, they increasingly see ESG as a driver of returns in the future, Fritz said.

Commerz Real also sees many opportunities in the current market environment. Earlier this year the company acquired a mixed-use trophy building at Maximilianstraße, one of Munichs most expensive areas from developer Centrum on behalf of a private investor for an undisclosed sum. It includes high end shops, a hotel, two residential units and offices.

“The current environment and the swift action taken by all participants mean we have been able to acquire a rare germ on Munichs Property Market for our client”, said Kerstin Struckman, Global Head of Procuct Management Institutional Clients at Commerz Real. Deka and Union Investment are also exploring the market for opportunities, as they as they see a growing number of foreign investors waiting in the wings.

Markus Wickenträger, Managing Director and Head of Portfolio Management, Real Estate Institutional at DWS, where he is responsible for special property funds for institutional investors. He considers 2024 to be an attractive entry point to benefit from the next property cycle. History has shown that the years following a major price correction have generally been among the best (vintage) years for capital investments.

Of course, on the short run, the financing landscape will be top of a lot of agenda and cash will remain king, as debt markets are still challenging. But if the location, prospective return, operating concept are right and contracts precisely tailored to the parties’ needs, institutional investors are very interested in hotel investments.

By Beatrix Boutonnet