by Matthias Lowin
January 28, 2010

What has the development on the European single asset transaction market for hotel real estate been like since 2001?  In order to give a reliable answer to this question, Feuring � in co-operation with Viador GmbH, a joint venture between Vivico Real Estate GmbH and Feuring � has done a comprehensive study on more than 820 single asset transactions.  For this purpose, the following questions were looked into:  What influence do exogenous factors have on sales and purchases, what have been the most important transaction markets since 2001 and to what extent is there a connection between the number of transactions, transaction prices and brand penetration?  Matthias Lowin, Managing Director of Feuring Hotelconsulting, introduces the most important conclusions of the study.

A closer look at single asset transactions carried out during the last few years clearly shows the market�s vulnerability to exogenous factors.  For example, after the terror attacks of September 11, 2001 there was a sharp decline in the number of sales transactions in 2002.  Whereas in 2001 there were 80 registered single asset transactions, the year after their number dropped by approx. 58 % to only 34 transactions.  The financial crisis which began in 2008 is also having a very noticeable effect on the number of transactions taking place.  This is reflected in the number of single asset purchases registered in 2008, which � compared to 2007 - went down by around 30 %.

Usually, the total volume of single asset transactions in a certain year will depend on the number of transactions carried out in that year.  A mere look at all total transaction volumes reveals that this figure seems to be less sensitive to external influences.  A comparison between the figures of 2006 and 2007 shows a decline in the number of transactions of more than 7.1 % whereas the total transaction volume only went down by 4.9 %.  A comparison between 2004 and 2005 even shows a slight increase in the total volume, although the number of single asset transactions during this period went down by more than 18 %.  This becomes even more evident when looking at the average purchase price for a hotel room in Europe.

After the terror attacks of September 11, 2001 and in spite of the resulting difficulties for the international hotel industry, the purchase price per hotel room in 2002 went up by just under 6.9 % compared to the previous year.  Although 2003 was one of the worst economic years for the European hotel industry, the average purchase price achieved in Europe could again be slightly increased by just below 2 %.  A drop in the average transaction price per hotel room could only be registered in 2004, one year after the international hotel industry reached its lowest point.  2005 and 2008 also show a positive development in the price per unit despite a decline in the number of transactions.

Summed up, it is right to say that the economic factors of recent years are having a clearly perceptible impact on the number of single asset transactions but that this is not necessarily having an effect on transaction prices.  Exogenous factors therefore have a lot more influence on demand than on the value of economic commodities.

The more chain hotels there are, the more single asset transactions will take place.

An examination of the brand penetration in different European locations reveals that Great Britain and Spain are those countries with the highest concentration of branded hotels and that they also belong to the nations with the highest number of single asset transactions. This is the case although these countries have far less available hotels than Italy and France, for example.

It is therefore not merely the size of a hotel market but rather to what extent it is penetrated with chain hotels that is decisive for the number of single asset transactions taking place.  One of the explanations for this conclusion is that because of its high grade of standardisation it is a lot easier to calculate the economic risk involved in purchasing a chain hotel than in purchasing a privately run hotel.  Also, chain hotels usually have a much better marketing potential.

The analysis of the average purchase price per room in Europe shows a completely different picture.  Only 3.9 % of all hotels in Italy are chain hotels, yet it is the most expensive market in terms of single asset transactions in Europe, followed by Switzerland and France.  So although the brand penetration in a particular country has a positive effect on the number of transactions taking place, surprisingly the highest transaction prices are achieved in countries with a low brand penetration.  One of the possible explanations for this is that although on the one hand, the standardisation of a chain hotel makes it easier to predict its economic feasibility, on the other hand prevailing benchmarks limit the price that can be asked for a property.  A further argument is that in countries like Switzerland or Italy, potential investors are confronted with a lot of obstacles making it difficult for them to find opportunities to enter these markets.  This in turn is reflected in the transaction prices achieved in such countries.

The single asset transaction market in Germany

A total of 97 single asset transactions that took place in the period between 2001 and 2008 were analysed.  The analysis revealed that, on average, there was quite a positive development in the number of transactions.  Thanks to this development Germany can keep pace with the rest of Europe in terms of the number of single asset transactions taking place.  The majority of single asset transactions were registered in the country�s major cities.  Twenty-one or nearly a quarter of single asset sales transactions in recent years, were carried out in Berlin followed by Hamburg, Munich, Frankfurt am Main as well as Dusseldorf and Cologne.  In the last few years, however, more and more transactions have also been taking place in smaller German towns, such as Marburg, Freiburg or Nuremberg.

With a share in chain hotels of 50 % in Berlin and 65 % in Hamburg, these are the cities with the highest brand density in Germany.  Nevertheless, in recent years the highest purchase prices per room were achieved in Wiesbaden.  Summed up, the analysis shows that in Germany the existence of chain hotels also clearly influences the number of transactions but that it does not have a decisive influence on the development of purchase prices.

A comparison between the European and German markets in terms of purchase prices per room makes obvious that prices in Germany are below average.  The difference is particularly noticeable in the 5-star hotel sector.  One of the explanations for this is that on a European average the RevPAR in Germany is relatively low.  However, a closer look at the RevPAR also reveals some other interesting aspects in terms of Germany as a location.  One of them is that the RevPAR in Germany shows a slight increase between 2007 and 2008, whereas in Europe it went down by an average of more than 6 %.  Another is that during the overall examined period, the hotel industry in Germany showed a RevPAR increase of more than 1.2 % per year, whereas in Europe it went down by 0.3 % per year. 

However, summed up, we can come to the conclusion that basically the overall trends and theories that are true of Europe are also reflected in the single asset transaction market in Germany. 

The complete study can be ordered free of charge by sending an e-mail to [email protected]