City review: Berlin

According to the latest city review by Christie + Co, using data provided by STR Global, Berlin hotels recorded a 9.3% decrease in RevPAR during 2009 compared to 2008. Despite being the city’s best ever year for tourism with 8.3 million arrivals (up 4.5% compared to the previous year) and overnight stays with 18.9million  (up 6.2% compared to the previous year), room occupancy across hotels in Berlin declined by 1.2 percentage points, while average room rate (ARR) dropped by 7.6% as a result of additional supply and the global economic downturn.

20 years after the reunification of Germany, Berlin has developed into an important economic centre with many national and international companies having headquarters or representations in the city. Berlin is also home of the German government as well as many other political institutions and was listed among the top five  conference and congress destinations in the world according to the ICCA city ranking. In recent years, Berlin has developed into a major city break destination, attracting a large number of national and international leisure travellers. Despite this, Berlin is still dominated by domestic trade, which generated c.60% of all overnight stays in 2009. Events, such as the athletics world championship and the celebrations  for the 20th anniversary of German reunification, also contributed to an increase in overnight stays generated by international guests, which increased by 5.9% in 2009 compared to the previous year. Major foreign source markets include United Kingdom, Italy and the Netherlands.

Trends in Hotel Market Performance

In 2009, the occupancy rate showed a moderate decline of 1.2 percentage points compared to the previous year. However, the average room rate decreased by 7.6%, resulting in an overall annual RevPAR drop of 9.3%.

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Click to enlarge image

Note: the above graphs and table are based on monthly and daily data received by STR Global for a sample of 126 hotels, totalling 26,774 rooms. The variance in occupancy (^) is expressed in percentage points.
COPYRIGHT DISCLOSURE. © 2009 STR Global Limited.

Despite total arrivals and overnight stays increasing in 2009 compared to the previous year, the hotel sector in Berlin seems not to have benefitted from this positive trend. Unsurprisingly, the impact of the financial crisis and the increase in room supply were the key negative factors  on overall RevPAR performance.

The quarterly data above indicates that occupancy figures did stabilise in the third quarter of 2009 (+1.0% compared to the previous year) and fourth quarter (-0.3% compared to the previous year). The year-to-date figures for 2010 have continued to be encouraging. In January, Berlin registered double digit RevPAR growth, driven by increasing occupancy and average room rate.

Trends in Hotel Supply

Berlin has seen a continuous growth of hotel supply over the past several years. Over the last twelve months, 17 new hotels with over 3,000 bedrooms have entered the market. Approximately three quarters were three- and four-star hotels, whilst the remainder were budget hotels. Six of these hotels are located in the Berlin-Mitte city district, four in Tiergarten, two in Charlottenburg, two in Schoeneberg and one each in Friedrichshain, Dahlem and Lichtenberg. Branded hotels, which entered the market, included the 4-star Leonardo Royal Hotel Berlin (346 rooms), the 4-star Adina Apartment Hotel Berlin (127 rooms), the 4-star Arcotel John F Berlin (190 rooms) and the 4-star boutique hotel Casa Camper (51 rooms) in Mitte; the 2-star Motel One An der Urania (411 rooms), the 2-star Motel One Berlin-Bellevue (248 rooms), the 2-star B&B Hotel Berlin Potdsamer-Platz (92 rooms), the 3-star Meininger Hotel Berlin Hauptbahnhof (296 rooms) in Tiergarten; the 3-star Leonardo Hotel Berlin (346 rooms) and the 4-star Abba Berlin Hotel (216 rooms) in Charlottenburg; the 3-star Axel Hotel Berlin (86 rooms) in Schoeneberg; the 4-star Seminaris Campus Hotel Berlin (186 rooms) in Dahlem; and the 4-star Andel’s Hotel Berlin (557 rooms) in Lichtenberg.

In addition, 20 development projects are still in the pipeline, totalling almost 5,000 new rooms, which are set to be added to the market over the next two years. In the economy and budget sector the EasyHotel Hackescher Markt (125 rooms), the Etap Hotel Berlin Alexanderplatz (156 rooms), the Motel One Leipziger Straße (304 rooms), another Motel One at the main railway station (517 rooms), the H10 berlin ku’damm (192 rooms), the all seasons Hotel Berlin Mitte (146 rooms) and the Tryp Hotel Berlin Mitte (225 rooms) are set to open. Additions to supply in the 4-star segment comprise the Soho House Berlin (39 rooms), the Adina Hackescher Markt (145 rooms) and the Scandic Hotel (565 rooms). The construction of the 4-star hotel Silken (205 rooms) is almost finished. However, as the operator has walked away, the hotel is currently vacant and the opening date is unclear. Only one 5-star hotel, Das Stue (85 rooms), will be added to the market this year. In 2011, two additional budget hotels will be opening, the Meininger Hotel Berlin Airport (151 rooms) and the H2-Hotel (280 rooms). The majority of hotels entering the market in 2011 are 4-star products including the Ramada Hotel (337 rooms), the Intercity Airporthotel (188 rooms), the Eurostar-Hotel “F100” (221 rooms), the Leonardo Boutique Hotel Berlin (310 rooms), a 170-bedroom hotel at Alexanderplatz, Nhow Berlin-Osthafen (307 rooms), the Pestana Berlin (142 rooms) and the Hotel Barcelona (478 rooms). Furthermore, a 5-star Waldorf Astoria (242 rooms) will also open its doors in 2011.

The development of new hotels in Berlin is set to continue after 2011, with several hotels already at the planning stage or just about to enter the construction phase.

Trends in Hotel Transactions

Transactional activity in the Berlin hotel sector slowed down dramatically in 2009 as a result of the challenging financial environment, with no significant hotel transactions taking place during the year. Only a few smaller hotels changed hands in 2009, with the majority of these transactions being leasehold deals. For example, Christie + Co advised the seller of a medium-sized bed & breakfast close to the Kurfuerstendamm shopping street with regard to the sale of the operating company. Furthermore, three smaller hotels with between 25 and 35 bedrooms were let to smaller domestic or local hotel operators. In all three cases Christie + Co acted as advisor to the landlords.

Outlook

Berlin recorded increasing arrivals and overnight stays, from both Germany and abroad during 2009, however occupancy and ARR still dropped due to increasing competition and the economic downturn. We expect this competitive pressure to further increase as a result of the number of hotel projects still in the pipeline. Another consequence could be the stagnation or even further decline of occupancy rates going forward. Since many ’newcomers’ are expected to gain market share by adopting an aggressive pricing policy, we believe that Berlin average room rates – low by national and international comparison in the first place – will come under even more pressure.