As can be seen in the graph below, occupancy was the main driver of revPAR improvements across all countries apart from the UK. Whilst Germany was no exception to this trend, the country has also started to see average room rates move in the right direction. In 2004 these increased by 0.4% on the levels achieved in 2003.

Improving economic performance

The growth in Germany's revPAR in 2004 reflects in part the wider improvement in its economy. Throughout the year, the German economy continued to receive daily press coverage, both good and bad. The Economist Intelligence Unit (EIU) estimate that Germany's Gross Domestic Product (GDP) grew by 1.7% in 2004 - the highest level since 2000.

Although exports now appear to be slowing following strong performance during the first half of 2004, it is now improving consumer confidence and domestic demand that seems to be fuelling economic growth. The EIU expects GDP to increase by 1.4% in 2005. However, continued discussions on reforms in terms of social security, health care and pensions, in addition to high levels of unemployment, continue to cause concern.

Stronger tourism numbers

Preliminary data from Destatis, the German statistics office shows that there were 338.9 m overnight stays in 2004. However, this was only a slight improvement (0.1%) on the levels achieved in 2003. Although the number of international tourist arrivals to Germany saw strong growth, this was offset by a declining domestic market.

Increase in international tourist arrivals

Europe remained the main international source market for German hoteliers, accounting for three quarters of all overnight stays to Germany. Latest figures from the German tourist board (DZT) show that the number of stays from this market grew by 7% year-to-September 2004.

Following the expansion of the European Union emerging source markets in Eastern Europe also increased their share in visitation. For example, overnight stays from Poland increased by 11%. Whilst the number of overnight stays from Russia, another emerging source market for Germany increased by 8.7%.

However, it was overseas markets that showed the strongest growth in the number of overnight stays. Year-to-September 2004 numbers showed a 51% and 17% increase in the number of overnight stays from Chinese and American visitors respectively on the prior year.

Domestic market lags behind

Although the improvement in foreign visitor numbers is excellent news, the German hotel market is largely reliant on domestic business. In 2004, domestic visitors accounted for 86.6% of the total number of overnight stays in the country. Therefore, while foreign overnight stays have showed growth, due to their small share of the market (13.4%), this only had a marginal impact on the total numbers. Interestingly however, statistics by business segment show an improvement in overnight stays for hotels by 3% compared to 2003, with the main decline recorded by camping areas.

Only four German cities see revPAR declines

Of the 21 cities tracked on the German edition of the HotelBenchmark Survey only four saw revPAR declines in 2004. These were markets located near the Baltic Sea (Rostock and Lubeck) as well as those in the Rhein-Main area (Frankfurt and Wiesbaden). Rostock saw revPAR fall by 10.2% during the year. Last year the city hosted the International Garden Exhibition (IGA) between April and October 2003 which attracted some 2.6m visitors. It is therefore not surprising that the city could not match this performance again in 2004. Markets in the Rhein-Main area also struggled due to missing trade fairs, such as Paperworld, ISH and IAA. These however are biennial events, so their re-occurrence in 2005 should again boost hotel performance in Frankfurt and the surrounding area.

However, as seen in the graph below it was cities in and around the Ruhrgebiet (Essen and Düsseldorf) that reported the strongest growth in revPAR in Germany. Düsseldorf had a particularly strong trade fair year hosting events such as Messe Düsseldorf, K - International, Drupa and Glasstec. Given Essen's close proximity, the city naturally benefited from the spill over effect of these. Both markets saw revPAR increase by 25% on the prior year.

Optimistic outlook

The outlook for the German hotel market looks good. Better economic conditions, a return in domestic demand and improving visitor numbers, are all expected to have a positive impact on German hotel performance this year. The growth in foreign visitors is set to continue throughout 2005 and into 2006 when the Football World Cup is hosted by Germany. This year the country will also host a variety of international events including the FIFA Confederation Cup and World Games. All this puts German hoteliers in strong position to build upon the improvements in occupancy achieved in 2004 to further strengthen average room rates.

Notes: All analysis in Euros.