GERMANY In the eye of the storm – or are we already overcoming the crisis ? The profile of the German hotel market has always been different compared to its counterparts in France and the Uk. Sky-high room rates in Paris and london have no parallel in Germany. For exactly this reason, Germany is weathering the ‘08-’09 economic crisis somewhat less painfully than its two european sisters. but what will 2010 bring ? MATTHIAS LOWIN, Managing Director of the Mainz-based FEURING HOTELCONSULTING GMBH, and ANNE MOOSMANN, Senior Consultant for the firm, walk us through an extensive analysis and prognostication. We have got a crisis. Everybody is talking about it. But can we During recent months, however, this huge disadvantage in also really speak of a « crisis » in the tourism sector ? According terms of the price range turned almost into an advantage. to the Federal Statistical Office Germany, hotel overnights What we could observe since September 2008 was that the dropped by 1 % in September 2009 compared to 2008 – does hotel prices in Germany in relation to other European countries this really mean there is a crisis ? hardly reacted at all, whereas the European hot spots like London or Rome had to face a major decrease in their rates. What does « crisis » mean, anyway ? How can we define a A decrease in demand is true for all destinations – even for crisis ? A lot of questions have been raised during this last year Germany – however the Revenue per Available Room (RevPAR) with regard to the topic. But there is no denying : yes, we are was not that highly affected and rates remained relatively stable in the middle of a crisis. What effect on which economies in Germany. Whereas London, Paris and Rome, the top three in this crisis will have remains to be seen. However, nobody can Europe, had to face major decreases in RevPAR, German cities neglect that this crisis will have a certain impact on the tourism remained relatively stable. industry any longer and therefore also on the hotel industry. We will try the impossible and give an outlook for the coming year. What will the German hotel market look like in 2010 ? GVc` 8^in GZkE6G GZkE6G nZVgid What will be the direct impacts of the crisis ? The indirect ? Is X]Vc\Z X]Vc\Z BVn'%%. nZVgidBVn'%%. nZVgidHZei#'%%. there any light on the horizon yet ? Let us take a closer look at these things : & 8dad\cZ9 "+#+ "&*#+ 1. The first shall be last and the last shall be first ' =VbWjg\9 ",#* ",#( The German hotel market is one of the most modern markets ( ;gVc`[jgi9 ".#. "&%#. in the world in terms of facilities. However, hotel prices in Germany do not comply with this high quality standard. ) Bjc^X]9 "&'#( "&.#' Germany has always been a « demand-friendly » market in * 7Zga^c9 "&)#% ".#' terms of hotel rates. While international capitals such as London, Paris or Rome realize high Average Room Rates (ARR), &% GdbZ> "&+#( "&*#& and single assets easily achieve rates in excess of €500, Berlin &( EVg^h; "&,#' "&(#. occupies the bottom of the list and realizes a constantly low ARR with top performers realizing only up to €250 – even &- AdcYdcJ@ "'%#( "&'#) though almost no hotel in Berlin is older than 10 years ! )% BdhXdlGJ ")&#, "('#, In comparison, Germany achieves much lower results than HdjgXZ/HIG\adWVa!'%%. other European hotel markets. One major factor causing these low prices is the decentralization of the country itself. Where centralized capitals such as London or Paris concentrate the In 2009, for the first time since it started, the crisis could be felt vast majority of demand in other countries, Germany has in the performance of the hotel sector in Germany. However, several capitals. Frankfurt as the country’s financial capital, 2010 will show the real impact of the crisis on the German Berlin as its political and Munich as its technological capital hotel market. As many contracts have been renegotiated, lead to a spread of the demand, without any constant high as well as some demand just collapsing, RevPAR may suffer demand in these destinations. Hence these cities cannot even more than in 2009 – at least in the first half of 2010. achieve comparable rates as other capitals in Europe. However, as already stated, the impact will not be as hard as in 64 HOTELyearbook2010 In the eye of the storm – or are we already overcoming the crisis ? « spoiled » markets where the ARR usually is very high and the leads to an increase in hotel demand and therefore in the net downturn is very noticeable. The other European destinations revenues of the hotels. This is particularly true for chain hotels. will therefore be faced with the same problems like Germany has had for years – small profits due to low rates. Hotel demand is highly dependent on the economy of the country it operates in, as well as the economy of its major The German hotel market has always been stable – at a source markets. The reaction of hotel demand – and hence low degree – and therefore will remain stable even during a the net revenues of the hotels – to the economic situation can recession. This is also due to the fact that Germany is a highly therefore be seen with a short time lag, but it clearly follows domestic market. Approx. 85 % of all overnights in Germany the same pattern. Taking into account the slight increase are generated by domestic travelers. Accordingly, this leads to in GDP of + 0.7 % in Germany in the third quarter of 2009 a lower dependency on international business and therefore, compared to the second quarter (source : Federal Statistical the reaction to a downturn in international tourism is rather Office Germany) and cautious forecasts predicting a slow small. The problem for the German market will only come back recovery of the economy by the end of 2009/beginning of when the economy is improving again. What will happen to 2010, we can also assume a recovery of the German hotel the German markets when all other markets recover again ? markets by the end of 2010 – taking into consideration the Will prices in Germany also go up, or will Germany – when the delay in the reaction. crisis is over – again be the last one in the row as far as prices are concerned ? Finding no. 2 : After a downturn there must be an upturn Finding no. 1 : Stable markets remain stable 3. Action - reaction 2010 will be the year of truth – not only for Germany but 2. Follow the signs for the whole of Europe. In 2009 a development could be Tourism demand, in particular hotel demand, follows the seen on the German hotel market which was overdue. Hotel economic cycles. A decline in Gross Domestic Product (GDP) operating contracts which were signed carelessly in times results in a decline in hotel demand ; an increase in GDP when hotel investments seemed to be « foolproof » now reveal <ZgbVcn/X]Vc\Zd[gViZhd[<9EVcY]diZacZigZkZcjZhh^cXZ&..' Edan#nZVgidYViZX]Vc\Z^c<9E &' NZVgidYViZX]Vc\Z^c<9E Edan#nZVgidYViZX]Vc\Z^cVkZgV\ZcZigZkZcjZh]diZah &% NZVgidYViZX]Vc\Z^cVkZgV\ZcZigZkZcjZh]diZah - + ) ' % "' &..' &..( &..) &..* &..+ &.., &..- &... '%%% '%%& '%%' '%%( '%%) '%%* '%%+ '%%, '%%- ") "+ "- "&% HdjgXZ/;Zjg^c\=diZaXdchjai^c\<bW=!'%%. KEY MARKETS IN 2010 www.hotel-yearbook.com 65 GERMANY In the eye of the storm – or are we already overcoming the crisis ? cont. their real potential – downside. Operating agreements with H^YZcdiZidi]Zide^X parameters that are not at all market-adjusted and simply not achievable, especially not on the German market, are now AZiÉhiV`ZVh]dgiadd`Vii]Z^bedgiVcihjXXZhh[VXidg collapsing. One prominent example is the former Kempinski » egd_ZXiYZkZadebZci ¼VcYb^hiV`ZhbVYZYjg^c\i]^h Grand Hotel Heiligendamm, meanwhile only the « Grand Hotel e]VhZl]^X]XVcijgci]ZWZhiegZb^hZh[dgV]diZa^cid VbV_dgY^hVYkVciV\ZYjg^c\deZgVi^dc# Heiligendamm », which now even needs to be backed up by the state in order to keep operations going. Another example -c_ijWa[i_dj^[fhe`[YjZ[l[befc[dje\bknkhoh[iehji is the most famous hotel in Germany, the « Kempinski Hotel HWda C_ijWa[ H[ikbj Adlon » in Berlin, which according to press reports can no longer pay the inappropriately high rent negotiated in the & 8dc[^\jgVi^dc >[Wj^aY^c\hVgZcdia^c`ZYidZVX]di]Zg deZgVi^dchWZXdbZY^[[^Xjai0Vc^cXdckZc^Zci contract. Compared to that, the reported re-negotiations h^ijVi^dcVcYadc\lVnh[dg\jZhihZ#\# of the former Dorint group or NH Hoteles seem to be [gdb\jZhigddbhidi]ZHE6aZVYid Y^hhVi^h[VXi^dcd[\jZhih# quite minimalistic. ' GddbaVndji GddbhcZZYidWZheVX^djhVWdkZVkZgV\Z [dgadc\hiVnh# What do hotel investors learn from this ? On the one hand, that ( 8dbeaZi^dc I]Z]diZacZZYhidWZXdbeaZiZl]Zc there were just too many fish in the bowl of hotel development deZc^c\#6]diZal^i]ZkZgaVhi^c\XdckZgh^dch – fish that cannot really swim. One of the major mistakes made VcYZmiZch^dchXVccdi_jhi^[n^ciZgcVi^dcVa *"hiVggViZh0^cVYY^i^dci]ZYZkZadebZci in the boom phase of hotel development was to believe that XdhihYdcdiZcYl^i]i]ZdeZc^c\Wjil^i] lease contracts are the best solution for investors. Now, not i]ZXdbeaZi^dc!]ZcXZYdcdidkZgheZcY WZ[dgZXdbeaZi^dc only are they not receiving the expected rent, even worse, ) HZVhdcVa^in [VX^a^i^ZhcZZYidegdk^YZ[dgnZVggdjcY they have to back up their hotels with extra money to ensure ViigVXi^kZcZhh0d[[ZgbjhiWZ necessary renovations or even to keep the daily business going. higjXijgZYVXXdgY^c\an# * HjggdjcY^c\ Djih^YZVgZVhcZZYidWZViigVXi^kZVcYZVhn So are management contracts the better vehicle ? Not idVXXZhh0cd»8Vbe9Vk^YX]VgVXiZg ¼! ^ciZ\gViZcZ^\]Wdjg]ddYVcYYZhi^cVi^dc0 necessarily. As always, it depends on the project, the situation VYZfjViZd[[ZghcZZYZYdjih^YZgZhdgi and the need of the investor. To evaluate all this, it is necessary h]dee^c\!XjaijgZ!ZiX## to cooperate with specialists.