After two years of emergency, the hotel market is still far from the pre-crisis level. The situation now appears to be gradually improving, although the sector is still uncertain between hope and fear, according to an analysis by bulwiengesa.
With the lifting of the blockade, tourism demand has increased again in many places, at least slowly. As a result, monthly housing climate surveys in late 2021 and early 2022 showed that mood in the hotel asset class was recovering after a rapid downturn in 2020. But shortly thereafter, with the onset of the hotel asset class. war in Ukraine, many actors have lost hope.
The German hotel market has so far held up relatively well during the crisis thanks to the high level of professionalism of all market participants and government aid packages. The mass insolvency feared at the start of the crisis has not materialized, although the number of overnight stays in the German hotel sector fell by almost 40 percent in both 2020 and 2021. At the same time, some tourist regions have achieved figures higher tourism in the summer months of 2020 and 2021 than before Corona, from which one or the other hotelier may have benefited. There is already a lot of talk about the “new status of holiday hotels”.
At the same time, Corona has hit a large part of the hotel market hard. In particular, hotels in large and medium-sized German cities, which before the Crown significantly drove tourism demand in Germany and thus were highly valued by investors for years. In cities with more than 500,000 inhabitants, the drop in overnight stays in 2021 was 56 percent compared to 2019. However, a closer look at individual cities reveals differences. While the level of overnight stays in the twelve major cities was nearly 50-60% below normal in early 2022, the situation in the smaller cities was often not as dramatic. This increasingly ensures that cities C and D attract the attention of operators and investors.
Despite all the euphoria in the holiday hotel sector, it should not be forgotten that not all tourist regions in Germany were as in demand as, for example, the coastal regions, and that demand was particularly aimed at accommodation types offering a high level of degree of flexibility and privacy, i.e. holiday homes and apartments or even campsites. It is no coincidence that project developers are desperate for plots of land for new vacation rental developments; the purchase prices of apartments and holiday homes are rising sharply. Furthermore, it is questionable whether Germans will continue to visit German tourist destinations with the same intensity once it is again possible to travel abroad. Because in the last two years not only hardly any guests from abroad went to Germany, but hardly any Germans went abroad. This will definitely change again. Because especially the countries where tourism is the main source of income will use all means to bring tourists to the country. An effective means of doing this is the price. The sharp rise in room prices in the North Sea and the Baltic Sea and the high inflation in Germany, which has already passed the five percent mark, do not bode well. The high price sensitivity of the Germans does the rest.
It is also more than questionable how companies around the world will handle trade shows and congresses or business travel in general in the future. The results of various surveys show that many companies will reduce their travel activities. Consequently, a certain degree of optimism is required to believe in a rapid pre-krona level and a rising interest rate level. Mainly because competition in the city hotel industry has not decreased over the past couple of years, but has increased, as new hotels have opened in many places and are still under construction or planning.
The hotel sector is not only under enormous pressure on the revenue side, which, by the way, has not even been characterized by particularly high growth rates in recent years. In the nine years before Corona, the RevPAR (revenue per available room) increased by just 29%, in the two years of Corona it fell by 64%, which is why supporting factors such as liquidity support, reductions in VAT, part-time work benefits or rent cuts were absolutely necessary to keep businesses safe. But these measures are mostly only temporary, hotel operators are burdened with rising costs. Above all, wages, which are now finally rising in the hotel and restaurant sector, a long overdue measure given the lack of workers in the sector and alarming wage levels in the hotel and restaurant sector. On the cost side, there are also rising energy costs, rising costs of goods and supplies and rising construction costs, which are again fueled by currently high inflation rates. This also applies to leases by tenants, which are usually indexed.
Additionally, many companies need to invest in digitalization and sustainability to stay fit for the future. Neither is a surprise, but it hits the industry at a very bad time. And even the hotel sector cannot escape the ESG theme, especially if it wants to be investable.
The pandemic was unpredictable, but the need to design more staff-intensive, digital and sustainable operations and portfolios with greater diversity was to be prepared for the future. Some traders, investors and developers recognized this early on and have therefore weathered the crisis relatively well so far. As a result, there is currently investor interest in innovative hotel concepts, serviced apartments or unattended properties with renovation potential. However, many companies don’t have the funds to invest now, which is why the path the hotel market will follow in the coming months remains unclear.
At the moment we still don’t see clear signs that the German hotel property market is ringing clear. Rather, we anticipate further closures, acquisitions and conversions of hotel properties, as well as falling property prices and a declining volume of new construction in the coming months.
This could cause problems in some places, as tourism in Germany is not possible without attractive hotels; this contributes around 7% to Germany’s value added and employs around 9% of all workers in Germany. The future of hotel properties depends not only on the return of tourism demand, but on the support of all those who directly or indirectly benefit from an attractive hotel landscape in Germany.