Hotel Report - · PDF filesuch events as the SAP TechEd (11to 13 2014) and those connected with the Bambi entertain-ments award presentations bring large numbers of

Hotel Report

In Focus Correlation of the overall economic development in relation to the supply and demand trends in the hotel industry

Edition December 2014

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Fairmas Gesellschaft für Marktanalysen mbH | Sachsendamm 6 | 10829 Berlin | www.fairmas.com Solutions Dot WG GmbH | Kranzerstraße 6-7 | 14199 Berlin | www.solutionsdotwg.com© 2014 Fairmas GmbH/Solutions Dot WG GmbH

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FairmasHotel Reportin cooperation with SolutionsDotWG

Index

Dear readers, 3

November 2014 in comparison to the previous year 4

Fairmas Trendbarometer 8

In Focus 16

Disclaimer 22


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Dear readers,

The year is drawing to a close. However, it is not yet the time for us to look back. Instead, we will investi-

gate the question of whether the hotel industry is a separate branch of the economy and how it is related

to the overall economy. Which indicators play a role when we want to judge whether a new hotel project

is going to be successful? Which factors should be used for assessing a location?

Professor Christian Buer from the University of Heidelberg has investigated the relationship between

economic development and the development of the hotel business for us. You can find an abstract of his

scientific treatise in this issue of the Hotel Report. Of course, you can also read the entire work here:

http://www.fairmas.com/sites/default/files/aktuelles/forschung_prongnosehotel_allgshort_nov14.pdf

We wish all our readers a peaceful and merry Christmas and an enjoyable start to the New Year, when we

will report back with an annual review.

The editorial team wishes you an enjoyable time reading the Fairmas Hotel Report.

(Gabriele Kiessling & Nadine Kilian)

Solutions Dot WG GmbH | Kranzerstraße 6-7 | 14199 Berlin | www.solutionsdotwg.comFairmas Gesellschaft für Marktanalysen mbH | Sachsendamm 6 | 10829 Berlin | www.fairmas.com © 2014 Fairmas GmbH/Solutions Dot WG GmbH

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November 2014 in comparison to the previous year1

A brief overview of hotel performances at selected German destinations:

1 All the figures (daily collected) quoted are comparisons with those for the previous year, rounded to full amounts Source: Fairmas GmbH/STR Global, Data as of 05.12.2014

Berlin

OCC: 76%, ADR: €88, RevPar: €67

The anniversary of the Fall of the Berlin Wall over

the weekend of 8/9 November managed to get

the hoteliers in Berlin cheering, too. The celebra-

tions attracted numerous visitors to the city, which

boosted occupancy greatly. The first weekend of

Advent meant strong occupancy figures for the

city. Overall, business sector trade in November

was also very strong, as expected. Not only did

such events as the SAP TechEd (11to 13 2014)

and those connected with the Bambi entertain-

ments award presentations bring large numbers of

visitors to the city, there were also many business

and event inquiries. The slight (- 1%) decrease in

room rates was due to the high proportion of leisu-

re guests. All the same, November in Berlin was a

very strong month, thanks to the steep (10%) year-

on-year increase in occupancy, combined with a

9% rise in RevPar.

Dresden

Occ: 58%, ADR: €73, RevPar: €42

The hotel industry in Dresden enjoyed an overall

successful November. Most hoteliers had not ex-

pected it but demand was significantly higher than

for the same month last year, even in the corporate

sector. Autumn has so far proved quite mild, which

has benefited tourist demand. However, many ho-

tels had already cut prices in anticipation of poor

November trade. The first weekend of Advent had

already been well booked in many hotels thanks to

the opening of the Striezel market (27 November

2014). This meant there was a 4% RevPAR incre-

ase in November (despite the 0.8% slide in room

rates) due to the 5% growth in occupancy.


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Dusseldorf

OCC: 74%, ADR: €123, RevPar: €94

November was a gloomy month for Dusseldorf’s

hoteliers. Occupancy fell by 1%, room rates by as

much as 7%, while RevPar fell by 8% on a year-on-

year basis. There was a lack of demand for events

in November. Besides this, the “A+A” trade fair,

which takes place every other year, was absent in

2014. Last year, it had been accompanied by high

room rates. The annual, major four-day “Medica”

trade fair from 12 to 14 November 2014 was usa-

ble to impress, with generally poor results in terms

of overall performance, even though higher room

rates than last year could be achieved.

Frankfurt

Occ: 72%, ADR: € 102, RevPar: €74

Even if November is usually a good corporate and

conference month in Frankfurt, it was rather a ne-

gative one this year (Occ: up 3%, ADR: down 4%).

The general downturn in conference business was

the main reason for the overall negative ADR de-

velopment. There was also a shortage of individual

pickup in many hotels. Not even the annual Eu-

roMold trade fair (24 to 28 November 2014) was

able to improve room rates, even if the event was

much more successful than 2013 (RevPar up by

17%). The growing number of beds is leading to

increasingly cut-throat competition. Many hotels

(especially in the four-star segment) had reported

very good performance figures last year, thanks to

the EWEA Offshore Congress (2014: Occ fell by

19%, with ADR 28% down and RevPar suffering a

massive 42% decline).

Hamburg

OCC: 80%, ADR: €108, RevPar: €87

The Trendbarometer promised good news for

Hamburg, which then became reality. November

was marked by a very positive (5%) year-on-year

growth in RevPar. Generally, the Hamburg Hotels

confirmed the prediction that this November’s

business would be blessed by especially good

advance bookings from the corporate and confe-

rence sectors, coupled with a high demand in the

transient segment (Occ up by 3% and ADR 2%

higher). Some hoteliers reported large increases in

short term pickup business, as well as in the indi-

vidual city breaks. The mild temperatures this year,

combined with the annual Christmas shopping

services provided Hamburg hoteliers with very sa-

tisfactory leisure-sector trade.

Cologne/Bonn

OCC: 74%, ADR: €95, RevPar: €70

Hoteliers in Cologne/Bonn had not anticipated any

forecasts of growth at all. And indeed, demand du-

ring business weeks and at the weekends was less

than in previous years. The Medica in Dusseldorf

(12 to 15 November 2014) did not give the city very


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much in the way of overflow trade, but room rates

during the period were significantly higher than last

year. Leisure business for the first weekend in Ad-

vent came about very slowly, but it did then ensure

good pickup. Overall, losses were not as big as

feared, though occupancy increased only slightly

by 0.1% and ADR rose by just 1%, resulting in a

1% growth in RevPar.

Leipzig

OCC: 70%, ADR: €84, RevPar: €59

November in Leipzig was marked by a 7% year-on-

year increase in RevPar, mainly due to the growth

in room rates (over 13%). The main reason for the

development was this year‘s autumn conference

of the German Diabetes Society, which took place

from 21 to 22 November 2014 in conjunction with

the annual meeting of the German Obesity Society.

The combined event meant sizeable room rates in

the city. The JCI World Congress (an event held

at rotating venues) , which took place from 24 to

29 November, provided additional business for the

Leipzig hoteliers, as well as ensuring high room ra-

tes. Occupancy dropped by 6%.

Munich

OCC: 78%, ADR: €130, RevPar: €101

The autumn school holidays in Bavaria fell comple-

tely within October this year, and consequently had

no negative effect on November. This meant that

November was marked by a whole extra business

week than last year. The “electronica” trade show

(11 to 14 November 2014) brought some healthy

exhibition business at high room rates to the city,

stronger than last year’s “Productronica” event. In

addition, general demand in the meeting sector

and the business travel field was remarkable. Mo-

reover, both individual and group business results

were also strong. The first weekend of Advent en-

sured a great deal of Christmas market tourism.

It was an excellent November for the Munich ho-

tel industry with significant performance improve-

ments on all levels – year-on-year occupancy rose

by 5% and room rates by 12% (RevPar was up by

18%).


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Overview of all destinations

2014 2013 Var. Var.% 2014 2013 Var. Var.% 2014 2013 Var. Var.%

Berlin 75,8% 68,9% 6,9 10,0% 88,2 89,4 -1,2 -1,3% 66,9 61,6 5,3 8,5%Cologne/Bonn 74,1% 74,0% 0,1 0,1% 95,0 94,1 0,9 1,0% 70,4 69,6 0,8 1,1%Dresden 58,3% 55,3% 3,0 5,4% 72,5 73,1 -0,6 -0,8% 42,3 40,4 1,8 4,6%Dusseldorf 74,0% 74,9% -0,9 -1,2% 127,6 137,2 -9,6 -7,0% 94,4 102,8 -8,3 -8,1%Frankfurt 72,2% 70,4% 1,8 2,6% 101,8 105,6 -3,8 -3,6% 73,5 74,3 -0,8 -1,1%Hamburg 80,2% 77,7% 2,5 3,2% 107,8 105,6 2,2 2,1% 86,5 82,1 4,4 5,4%Leipzig 69,9% 74,0% -4,1 -5,5% 84,2 74,3 9,9 13,3% 58,9 55,0 3,9 7,0%Munich 77,9% 74,0% 3,9 5,3% 130,2 116,4 13,8 11,9% 101,4 86,1 15,3 17,8%

*Source: Fairmas GmbH / STR Global, based on data from participants with daily data entry, Data as of 01.12.2014

LegendOCC OccupancyADR Average Daily Rate (net rooms revenue)RevPar Revenue per available Room (net logistics revenue per available room)

Hotel Performance November 2014/2013*

Occupancy in % Average Daily Rate in Euro RevPar in Euro

10,0%

0,1%

5,4%

-1,2%

2,6% 3,2%

-5,5%

5,3%

-1,3%

1,0%

-0,8%

-7,0%

-3,6%

2,1%

13,3%11,9%

8,5%

1,1%

4,6%

-8,1%

-1,1%

5,4%7,0%

17,8%

Berlin Cologne/Bonn Dresden Dusseldorf Frankfurt Hamburg Leipzig Munich

Occ ADR RevPar


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Fig.1: Trendbarometer Berlin 2014 – Trend versus last year

1,0%

3,5%

-0,8%

-0,7%

-1,8%

-4,6%

0,3%

1,6%

-5,4%

December

January

February

Last Year

Occ ADR RevPAR

Source: Fairmas GmbH / Data as of 05.12.2014

Fairmas Trendbarometer

A peek into the future – in detail:

Berlin

December does not promise any major changes

from last year (Occ: +1%, ADR: -0.7%, and Re-

vPar: +0.3%). Business sector trade will decline

steadily and the majority of travellers will be from

the leisure segment during the weeks of Advent

and the Christmas holiday period itself. It will there-

fore be difficult to increase in room rates. Berlin

hoteliers are still expecting good business sector

trade in the first two weeks of the month. The num-

ber of shopping and Christmas market tourists will

be around last year‘s level. Demand at the Advent

weekends has always been high in recent years.

New Year‘s Eve and the days leading up to it are

highly promising because the public holidays are

very convenient for employees this year; using just

a few days of their vacation

they can manage take the

whole week off. Nonetheless,

December this year will be a

classic low-season month

with little group sector trade

or business visitors.

Early 2015 promises to be

healthy. In January, a 4% in-

crease in occupancy is expec-

ted. Employee-friendly long

weekends at the end of the

year will ensure plenty of leisure business, though

room rates will be weaker. Hoteliers have so far

been cautious about predicting the Green Week

and Berlin Fashion Week because both events

were poorer in 2014 than in previous years. Be-


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sides that, the Grüne Woche (“green week”) has

little relevance in terms of overnight bookings and

then only in the West of the city. On the other hand,

the “Bread & Butter” fashion event is increasing in

importance. However, ambiguous communication

on the part of the organizers about whether this

trade fair should now take place in Berlin or Barce-

lona has meant that some hotel rooms have been

sold at lower prices. Currently, it is estimated that

the average room rate will fall by 2% (with Rev-

Par up by2 %). Nevertheless, advance bookings

are looking respectable. In recent years, January

has turned into a great kick-off convention month.

However, room rates are too low because after all,

everyone wants a piece of the pie.

February is predicted to be significantly weaker.

Occupancy is likely to decline a little (down 0.8%).

However, ADR is likely to fall by almost 5%. A de-

cline of more than 5% in RevPar is also expected.

The BAUTEC trade show will not be taking place in

February 2015. It is only held every two years and

it led to very good room rates in the city last year.

The Krebskongress (Cancer Congress) is also held

every other year and will be absent in February

2015. Nevertheless, preliminary booking levels for

the conference business in many hotels are good.

The “Fruit Logistica” event also has the potential to

boost performance, so that many hotels are con-

fident the forecast will still turn

out to be positive after all.

Cologne/Bonn

Hoteliers in Cologne/Bonn

are cautiously positive in their

forecasts for December. They

expect a 3% increase in occu-

pancy combined with a 0.5%

decrease in ADR, resulting in a

RevPar increase of more than

5%. Leisure sector business in

particular should be good; there

is very healthy demand every year during the Ad-

vent weekends. This year, even the fourth week-

end of Advent is set to be very popular because it

is well before Christmas Eve, which this year falls

on a Wednesday. The first two business weeks are

also looking better than expected, and it could well

be that the extra business day before Christmas

Fig.2: Trendbarometer Cologne/Bonn 2014 – Trend versus last year

2,9%

0,0%

5,5%

2,4%

-0,9%

6,9%

5,4%

-0,9%

12,8%

December

January

February

Last Year

Occ ADR RevPAR



Page | 10


Eve will have a positive effect on the accounts.

Christmas market tourism is booming, and New

Year‘s Eve is very promising. In Cologne and Bonn,

hoteliers are looking towards the end of the year

with optimism.

Cologne/Bonn expects a slow start to the New

Year. January is predicted to be slightly down. Oc-

cupancy is set to stagnate (0.0%), while room rates

and hence RevPar will decline by 1%. There was

no “ISM” this January (the next one will be held on

1 to 4 February 2015). The nights with the greatest

demand in 2015 are in February, while this year, the

trade fair took place in January (26 to 29 January

2014). The “imm cologne” (19 to 25 January 2015)

is already sold out in many hotels. The “Living Kit-

chen” event is also scheduled for the same period.

So far, bookings in the first week of January are

still very poor. Many hotels are

trying to attract leisure sector

guests to the city by offering

low room rates.

However, forecasts for Febru-

ary are very good. A 6% im-

provement in occupancy and

a 7% growth in room rates will

lead to an expected 13% Re-

vPar increase. As mentioned

above, this year’s IMM falls

entirely in February, which will ensure significant

growth in room rate and occupancy. But in 2015,

the whole of the Carnival period falls in February.

This traditionally ensures good business in the city

and lets the hoteliers be confident in their predic-

tions.

Dresden

The hoteliers in Dresden are again more confident

about the December performance. A 2% growth

in occupancy is thought likely and room rates are

expected to grow by as much as 3%, leading to a

5% rise in RevPar. As the fourth Advent weekend is

so close to Christmas, it will be difficult to sell it to

leisure-sector customers but this year it is in great

demand and even partially booked out. Hotels will

be adjusting their room rates upwards. New Year‘s

Eve is also looking good for Dresden, as is the tra-

Fig.3: Trendbarometer Dresden 2014 – Trend versus last year

1,6%

7,0%

7,0%

3,3%

0,1%

-0,3%

4,9%

7,2%

6,6%

December

January

February

Last Year

Occ ADR RevPAR



Page | 11


dition. Hoteliers are tightening the price screw, so

that room rates for the Advent weekends are signi-

ficantly higher than in recent years. However, while

this may be partly at the expense of occupancy,

the outlook for average room rates remains posi-

tive. Besides this, the Dresden Marketing GmbH

is advertising much more actively this year than

in previous years, and the city’s hotels are clearly

noticing this.

Expectations for the start of the New Year in Dres-

den are very positive. Occupancy is predicted to

increase by 7%, though room rates will virtually

stagnate, with a tiny increase of just 0.1%. Thus,

a RevPar increase of 7% is anticipated in January.

Hoteliers expect healthy leisure-sector business in

January due to the employee-friendly timing of the

school holidays (using just one day of the annual

holiday allowance means an employee can have

five days off work), and the fact that the school ho-

lidays take up more of January than was the case

in 2014. In general, hoteliers in Dresden are cau-

tiously optimistic about the New Year.

This confidence is confirmed for February, too.

Although room rates will decrease slightly (down

0.3%), occupancy is set to increase by 7%, which

will also boost RevPar. There are no large congres-

ses or events in early 2015. January and Februa-

ry are classic low-season months in Dresden, yet

the local hoteliers are looking forward to growing

demand. The forecasts look better than last year.

However, no large increase in room rate is expec-

ted, because unlike in the pre-Christmas and New

Year period, leisure guests are unwilling to pay hig-

her room rates. In 2015, the Semper Opera Ball is

being held for the first time in February, which may

stimulate higher room rate business a little.

Dusseldorf

There are hardly any trade shows in Dusseldorf this

December. That was also the case at this time last

year. Nevertheless, hoteliers are expecting a 1%

decline in occupancy. Savings made by corporate

clients, as well as reduced demands in the meeting

and conference sector due to more stringent com-

pliance measures are increasingly having negative

effects on the Dusseldorf hotel trade. Leisure busi-

ness is increasingly short-term at the weekends,

hindering any accurate assessment. The slight

(1%) room rate increase was mainly due to this

year’s “Valve World Expo” trade show. It had been

held in the USA last year. Experience shows that

the first three weeks of December are business

weeks that are easy to sell. Above all, there is usu-

ally good demand over the weekends in the run-up

to Christmas, so that occupancy and room rates

might well rise as leisure bookings in particular are

made at very short notice.

So far, January also seems set to be a troubled

month for hoteliers in Dusseldorf, with RevPar


Page | 12


down by 6%. As a result, many

Düsseldorf hotels are recording a

major fall in the volume of mee-

ting and business overnights

(Occ: -1%). The first week of

January in particular is poorly

booked so far, because 6 Ja-

nuary 2015 is a public holiday in

some of Germany’s federal sta-

tes. A more specific statement

on the January forecast can be

expected from mid-November

onwards. An improvement in oc-

cupancy and room rates due to short-term corpo-

rate bookings can also be expected, because up

to now, the booking situation is still very subdued

and many corporate customers are simply keeping

their inquiries as options.

February does not promise any improvement, eit-

her. An overall RevPar decline of 38% is expec-

ted, mainly due to an extremely bleak room rate

forecast (down by 29%). Due to the absence of

the “Euroshop” trade fair (held every three years),

February 2015 will not be as successful as the

same month in 2014. The preliminary booking situ-

ation is also very poor. Add to this the fact that the

2014 Carnival took place in the first week of March,

which will not be the case in 2015 (the next one will

be in mid-February) and it all means that the hote-

liers in Dusseldorf will be missing a whole week of

corporate sales in February.

Frankfurt

Compared to last year, forecasts for this December

are very gloomy indeed. Occupancy is expected

to decline by 10%, though room rates will rise by

3%. A 7% decline in RevPar is thus expected. Last

year, the “EuroMold” event took place in Decem-

ber, trade fair days that will be missing this year. So

far, preliminary bookings in the leisure and events

sectors are good but volume is still short in the

individual segments. Yet even if the bookings for

Christmas and New Year soon pick up, the figures

could still turn out to be clearly positive, because

the development of room rates not least depends

on individual pickup, something which is currently

very difficult to estimate. Group business is expec-

ted along with the Christmas market tourism. In

addition, the last three weeks before Christmas are

likely to be business weeks which will be easy to

sell. In addition, the Lufthansa strike in December

Fig.4: Trendbarometer Dusseldorf 2014 – Trend versus last year

-1,3%

-0,5%

-12,7%

1,2%

-5,5%

-29,2%

-0,1%

-6,0%

-38,2%

December

January

February

Last Year

Occ ADR RevPAR



Page | 13


may generate additional lay-over trade for some

hotels.

The forecast for January is also less optimistic than

last year’s, largely because of the negative occu-

pancy trend (down 5%). This time, the Christmas

holidays in many federal states are up to three

days longer than in 2014, which will lead to a dec-

line in corporate and conference business in 2015.

In addition, the absence of “Paperworld” in Janua-

ry means two full trade fair days fewer in February

2015. Last year the entire event fell within January.

The steady growth in hotel openings in Frankfurt

is leading to cut-throat competition among hotels;

this is becoming particularly noticeable in the win-

ter months due to the lower room rate levels com-

pared to last year.

Forecasts for February suggest

no improvement. So far, there

is likely to be an overall Rev-

Par decline of 1.2%, despite a

positive room rate projection

(up 1%). Here too, the prelimi-

nary booking position fails to

reveal very much. In addition,

two events that were held at the

trade-fair site in February 2014

will be missing in 2015 (“Art &

Antique” and “Facility Manage-

ment”). This year, Carnival falls entirely in February

(last year it was held at the end of February and

beginning of March). Due to the Ambiente trade

fair (held every two years), which held in parallel, it

is hoped that little corporate business will be lost

during the month. It is generally assumed that Fe-

bruary will still develop positively and yet it is so far

difficult to assess whether the levels of 2014 will be

maintained.

Hamburg

December also looks likely to be an extremely

promising one in Hamburg. Increases in all three

key indicators are expected: occupancy is set to

rise by 3% and room rates by 2%, leading to a

5% growth in RevPar. In Hamburg, there are still

three more full business weeks before Christmas.

Fig.5: Trendbarometer Frankfurt 2014 – Trend versus last year

-10,3%

-4,8%

-2,2%

3,4%

0,9%

1,0%

-7,2%

-3,9%

-1,2%

December

January

February

Last Year

Occ ADR RevPAR



Page | 14


The 14th Congress of the German Interdisciplina-

ry Association for Intensive Care and Emergency

Medicine has so far already generated strong de-

mand in the first week of December. Demand at

the Advent weekends is also good, especially in

the group travel sector, which explains the positive

occupancy outlook. New Year‘s Eve is also ideal

for leisure travellers this time around. The hoteli-

ers in Hamburg are looking towards the end of the

year with confidence, although here too, bookings

are being made at short notice.

There is also confidence about all three key indi-

cators in January: Occ: up by 4%, ADR: up 3%,

and RevPar 7% higher. With regard to the room ra-

tes forecast, many hoteliers are already registering

very good advance booking levels in response to

a number of events, as well as a significant growth

in demand in the MICE sector. In January 2015,

Hamburg hoteliers are expec-

ting improved short-term boo-

king inquiries for annual kick-off

events and tourist trips.

February continues to promise

strong growth, mainly due to the

very positive room rates outlook

(up 5%) due to an increase of

more than 6% in RevPar. The

reason for this positive forecast,

according to many hoteliers, is

the already intense demand in the MICE and indi-

vidual tourism sectors. Many smaller events and

congresses are taking place next year, like the

“Reisen Hamburg“ travel show or the Congress of

Christian Leaders, which will be responsible for the

increase in room rates.

Munich

Forecasts for December in Munich are still restrai-

ned. A slight (0.6%) decline in occupancy is expec-

ted, as well as a fall in room rates by 0.5%. This

means RevPar will decline by 1%. December con-

tains three full business weeks, which could mean

many guests paying high room rates, especially as

the third week of Advent is a relatively long time be-

fore Christmas. There will be no trade fairs or other

major events in December. Individual bookings are

made at a late stage. It remains to be seen whether

there will still be room for improvement, but busi-

Fig.6: Trendbarometer Hamburg 2014 – Trend versus last year

2,7%

3,5%

1,8%

2,4%

3,0%

4,5%

5,2%

6,6%

6,4%

December

January

February

Last Year

Occ ADR RevPAR



Page | 15


ness at Christmas and New Year will be far worse

than last year in many hotels.

January 2015 in Munich is expected to be much

better than the first month of 2014 (Occ: +3%,

ADR: +18%, and RevPar: +21%). The main reason

for this encouraging development is the BAU trade

fair, which takes place every two years (19 to 24

January 2015) and regularly ensures healthy rates.

The public holiday on 6 January 2015 (Epiphany)

will have a negative effect on business sector trade

and, in turn, on occupancy and

room rates in the first week.

However, even if one allows for

the low ADR associated with lei-

sure sector business, this only

serves to reinforce the enor-

mous positive impact that the

“BAU” event has on room rates

and RevPar.

Also in February, hoteliers are

looking forward to a stronger

performance than last year. Increases in occup-

ancy (3%), room rates (12%) and thus in RevPar

(16%) are expected. The main reason for this is

the ISPO trade event (5 to 8 February 2015) which

otherwise takes place in January. The Munich Se-

curity Conference is being held at the same time

(6 to 8 February 2015). In addition, February 2014

was an exceptionally weak month in many ho-

tels compared to the last few years, particularly

in terms of occupancy. However, hoteliers expect

that this will move into the black in 2015.

Fig.7: Trendbarometer Munich 2014 – Trend versus last year

-0,6%

3,3%

3,2%

-0,5%

17,5%

12,1%

-1,1%

21,4%

15,8%

December

January

February

Last Year

Occ ADR RevPAR



Seite | 16


In Focus

Correlation of the overall economic development in relation to the supply and

demand trends in the hotel industry and the industry’s economic efficiency

Background

The systematization of the hotel industry in the 1980s was followed by the growth (real-estate boom) of the

nineties and the “noughties”. The growth of the hotel industry in Germany is organic and opportunistic. The

country’s federal structures are the core of the economic development of the accommodation markets.

Derived from this, location decisions (in particular those of the system hotel trade) can be classified more

as „safeguarding strategic locations“ and less as „economically rational growth“.

Based on these considerations, the following questions need to be asked:

• Are growth strategies to clean-up the hotel and location portfolio of system hoteliers such as Dorint

AG, based on capital investment grants (rent subsidy and construction cost subsidy) still useful from an

economic point of view?

• Is the economic power (i.e. demand) of a country where the focus is on the secondary sector the driver

behind occupancy for the hotel industry or is the hotel industry self-supporting as a part of the „tourism“

sector of the economy?

The research question for Germany arising from this consideration and discussion is this: Is the hotel indus-

try in Germany, with its fragmentary structure, an independent economic driving force (Germany is a tourist

country) or is it directly related to the economic strength of the country’s core industries?

The key industry in a country is defined as the central economic force primarily providing employment in

that country and which in turn defines economic growth and thus GDP.


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Based on these questions, on the one hand resulting from the question of the correlation of the hotel in-

dustry to a country’s economic strength, and on the other from the general economy’s key indicators, can

profitable investments in hotels constitute the development of a location? If “yes”, are these sustainable

locations for profitable hotelier activities for both operators and investors?

The thesis is that a positive relationship exists between the „economic power“ of a region and the „eco-

nomic success“ of a hotel, and the „independent economic strength of the hotel operation“ is secondary

to the overall economic success. Here, overall economic success is based on the sustained economic

livelihood of the operator and the expected rate of return for the investor, in other words the property owner.

In this perspective, the separation of real estate and operation (as a principal understanding of the different

risk and target model) is a prerequisite.

The analysis for Germany

The correlation analyses of the economic factors in Germany relate to the gross value added and the

gross domestic product, as well as business taxes. The measurable quantities in the hotel industry are the

demand-relevant factors of overnight stays and the turnovers achieved, and room rates occupancy and

revenue (= performance values), as well as supply factors of available the available operations and beds.

The results of these relation analyses show that:

• There is a high correlation between the gross domestic product (GDP) and the number of overnight

stays in hotels,

• A positive correlation was determined between the gross value added (GVA) and demand (hotel over-

nights), while

• Business tax revenue is positive in relation to the number of overnight stays.

The latter aspect is a purely location-dependent factor. Since the advent of globalization, tax-optimizing

international business models can be created that lead to a low or even zero tax burden in Germany by


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means of appropriate profit withdrawals. From the positive relationship between trade tax revenues and

overnights, it can be concluded that the structure of the hotel industry in Germany is still fragmentary, small

structured, and thus overwhelmingly in private hands.

In the correlation analysis, the approach of verification and investigation of a market niche via a supply ana-

lysis based on population size that is commonly practiced by consultants, investors, financiers (banks) is

classified ad absurdum, particularly for such cities as Munich and Berlin. The bed density determined here

is irrelevant for an economic assessment of „demand“ and „existing and potential supply“.

Deeper analysis of Berlin and Munich in terms of a location survey also reaches (in the case of Berlin) the

additional conclusion that this is a distinctive tourist location, and the that correlation of employees and

trade tax is a positive one at this location. The last two factors were only found to be modest where Munich

is concerned.

Based on the thesis, the analysis permitted one preliminary conclusion: The supply-side derivation of ca-

pacity gaps (sleeping accommodation) at a location has a positive relation to the economic factors of GDP

and GVA for Germany, though not to the levels of workforce and business taxes! The theory so derived

from these correlation analyses can thus be confirmed. The theory is confirmed that GDP and GVA are

trend instruments and serve as indicators for determining the economic success factor for a hotel when

selecting the location.

The interpretation for investors

For investors, the locations must be distinguished in terms of investment and asset management costs

in the context of a comprehensive portfolio property real estate strategy for German real estate. The in-

vestment volume makes demands on the total capital available and/or that derived from the expectations

of the return on equity that can be achieved. On the other hand, the asset management costs should be

considered in terms of the property owner’s support and maintenance costs.

For investors (and in a wider sense, for operators) this correlation analysis shows that location potentials for

the expansion or development of hotel locations in the multipolar hotel market must be sought at those lo-

cations and destinations where economically stable development and a low fluctuation of economic deve-


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lopment exist. When this is examined from the perspective of system hotels, private hotels face cut-throat

competition due to the expected economies of scale that aid system hoteliers, primarily franchises. On

the other hand, from the investor’s perspective, this is a regional orientation of an operator with a national

„brand”. From the perspective of the investors, this is because their investment interest in the German hotel

market is primarily focused on major cities. The same applies to the system operators who are searching

for economies of scale on their own (ownership and leases), based on risk diversification and risk behaviour.

Regional or even local hotel developments are based on the distinct individual interests of the local investor,

through which the operator will achieve economies of scale with a „local operator“ and a franchise.

There is thus a location conflict of the „major cities“ as the primary investment field in relation to the high

investment costs, the lower asset management costs and the high readiness of international system chains

to make an obligation to guarantee the overall return on investment (risk minimization) to a greater expected

range of economic variation. This level of fluctuation is high at such locations and among other things; it is

dependent on international economic forces, which in turn influence travel and demand behaviour. Loca-

tions that have an economically high stability and, according to the survey, particularly in the medium-sized

and smaller towns and cities or even in distinct regionally fragmented structures, are a sustainable econo-

mic investment and have a relatively lower risk of failure, both for operators and property owners.

Institutional investors and system operators are not interested in a comprehensive investment model be-

cause of the expected small size of the development at lower operating variables, since the effort to de-

velop (including the development of the location) is the same, regardless of the size of the company and

the location. This means that local and regional investors have to be found, even at the regional locations,

and they need to coordinate with a regional operator in turn. The system hotel trade is happily available

for franchise models. The development costs for a member of a chain are the lowest of all business and

operator models.

Conclusion for Germany:

From this situation, it can be deduced that the hotel industry is a supplier to Germany’s economic drivers

(i.e. the automobile and mechanical engineering industries, consulting and auditing, as well as the education

and training sectors) and that the divergent interests of operators and investors do not correspond with the


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economically regional structures (federal economic centres). The previous indicators for the development of

economically stable system hotels in major cities do not reflect the potential of the regions (high economic

strength with only slight fluctuations). The hotel industry in Germany is not a separate touristic economic

driver. Instead, it is dependent on the development of the economy as a whole. From the real estate per-

spective, investments in hotels in regions with low GDP fluctuation are thus the most economically stable!

Summary:

The development of new locations cannot be carried out with the usual indicators of arrivals, overnight

stays and bed density as the sole means of assessment. Rather, the analysis of the factors related to de-

mand and supply must be re-considered in detail, in order to create an „economic sustainability factor“ that

will permit a secure and stable yield. Unfortunately, this model is not yet sufficient to determine a credit fac-

tor among investors and financiers that can be applied for the benefit of small and medium-sized operators.


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The Fairmas Hotel Report is published by:

Fairmas Gesellschaft für Marktanalysen mbH, Sachsendamm 6, 10829 Berlin, Deutschland

Solutions Dot WG GmbH, Kranzer Strasse 6-7, 14199 Berlin, Deutschland

Fairmas Gesellschaft für Marktanalysen mbH specializes in market

analyses and the development of planning and controlling software

for the hotel industry. The company offers its international clientele a

hotel benchmarking platform, as well as various software applications

for the fields of budgeting, forecasting, controlling, management re-

porting and work process optimization.

As a strategic management consultancy, Solutions Dot WG develops

individual and customized strategies and solutions for companies in

the hotel, catering and tourism, and provides support in implementing

plans. Solutions dot also manages independent project implementa-

tion, is active in support management and interim management, as

well as in the total quality management (TQM) sector.

The Fairmas Hotel Report is edited by:

Nadine Kilian, Marketing & Communications Manager,

Fairmas Gesellschaft für Marktanalysen mbH, e-mail: [email protected]

Gabriele Kiessling, Consultant und Project Management,

Solutions Dot WG GmbH, e-mail: [email protected]


Page | 22


Disclaimer

No representation or warranty (express or implied) is given as to the accuracy or complete-ness of the

information contained in this publication, and, to the extent permitted by law, Fairmas GmbH / Solutions

Dot WG do not accept or assume any liability, responsibility or duty of care for any consequences of you

or anyone else acting, or refraining to act, in reliance on the information contained in this publication or for

any decision based on it.

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