Hotel Market Germany MarketView

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1 Hotel Market MarketView 2012 CBRE Hotels / CBRE Global Research and Consulting GDP Q4 GER 0.6% Q-o-Q GDP Q3 GER +0.2% Q-o-Q IFO INDEX Jan Y GOV BONDS 1.67% Jan 2013 UR GER 7.4% Jan 2013 OVERVIEW Quick Stats 2012 Y-o-Y Investment volume 1,4bn Prime Yield Hotel 5.75% ADR Occupancy 66.30% RevPAR 62.41, STR Global Economy The German economy is currently suffering the negative effects of the European recession and the slowing down of the global growth rate. According to official statistics published by the Federal Statistics Office, the real GDP in the fourth quarter of 2012 (after adjustments for price, seasonal and calendar effects) contracted by 0.6% compared to the previous quarter, after it had already experienced a slowdown in growth in the preceding quarters. This resulted in growth of 0.7% for the full year 2012 (after 3.0% in the previous year). On a European level, the domestic economy is demonstrating its relative strength despite the economic turmoil. Overall, the economic performance in the final quarter of 2012 was produced by a workforce of 41.9 million, and thus 320,000 persons or 0.8% more than in the previous year. This is the highest employment level since reunification and shows conclusively the continued robust condition of the German labour market, even if unemployment rose slightly due to seasonal factors at the turn of 2012/2013. However, even more optimistic early indicators show that the German economy is expected to recover swiftly in the first half of 2013 and there should be a higher level of growth dynamic at the end of the year. 1 Hot Topics Investment turnover 24% higher than previous year International investors contributed 70% of total transaction volume in focus, with a transaction volume of around 500m is one of the most sought-after locations worldwide due to its excellent performance; the supply of investment opportunities is however very limited Business statistics of the top 5 cities surprisingly strong despite weak European economy Highest RevPAR growth in and Hotel investment market Transaction volume rose in the German hotel market for the third year in succession. In 2012, volume increased by 24% compared to the previous year, reaching 1.4bn. Correspondingly the amount invested in institutional investment products (each in excess of 10m) rose from 950m in 2011 to around 1.15bn in Of the 25.2bn total investment turnover in commercial property in in 2012, hotel investment turnover increased its share slightly to 5.5% (previous year: 5.0%). International investors were most active and accounted for a considerable 70% of investment volume. As in the previous year, single transactions dominated in 2012 with a share of over 80%. Whilst private investors were the largest purchaser group in 2011, the most dominant investor groups in 2012 were asset managers, private investors and fund managers. As in 2011, the vendor side was dominated by developers with a share of 25% of investment volume. Current net initial yields for hotels subject to operating leases usually range from 5.75% to 7.25%, depending on location and quality of the property, creditworthiness of the tenant and the terms of the operating lease. Table 1: Hotel market - key data Y-o-Y Investment volume, million 1, , % Prime yield, % %-Pts. ADR, % Occupancy, % % RevPAR, %, STR Global

2 1,000 2 Tourism in 2012 The German tourism economy can look back on an excellent year in 2012 and confirms s position as one of the most popular travel destinations in the world. According to preliminary statistics produced by the Federal Statistics Office, the number of overnight stays increased by around 4% in A total of million overnight stays was recorded in, exceeding the 400 million mark for the first time. It was the third year in succession of rising number of overnight stays. The number of overnight stays attributable to German guests rose by 3% to million and international guests increased their share by 8% to 68.8 million. Although the number of international visitors has successively increased, the German hospitality industry is still dominated by domestic travel, which accounts for 83% of all overnight stays. According to the German Tourism Association, domestic German tourism is currently the strongest in the whole of Europe. In addition to the cultural variety, s considerable attractiveness as a travel destination is due to many other factors such as the high standards of health and hygiene, the above-average safety in the country, and the excellent transport infrastructure. Business travel in particular is an important pillar of the tourism economy, benefiting from the solid economic base and the good international image of as a business location. The many world-leading fairs and congresses also make a significant contribution. City breaks were very popular with both domestic and international guests. In the past year this was reflected by the above-average rises in overnight stays in the largest German cities. The most significant rise was in with around 12% more overnight stays than in the previous year. and Frankfurt both reported growth of 11%. In terms of absolute numbers of overnight stays, the federal capital was again by far the frontrunner compared to other German cities. With a total of 24.9 million overnight stays, the capital s performance was more than double than that of its nearest rival, which was in second place with around 12.4 million overnight stays. In third place was the Hanseatic City of with 10.6 million overnight stays. In 2012 passenger volumes at German airports were at approximately the same level as in According to the German Airport Association (Arbeitsgemeinschaft Deutscher Verkehrsflughäfen ADV), a total of almost 200 million air passengers were recorded in, just slightly more than in 2011 (+1%). Domestic air travel fell slightly (-4%), whilst European travel (+2%) and intercontinental travel (+5%) both registered increases compared to the previous year. However, the growth rates were somewhat weaker than in The highest passenger numbers of all German airports in 2012 were recorded in Frankfurt with around 57.5 million passengers (+2% compared to 2011), with 38.4 million passengers (+2%) as well as Schönefeld and Tegel together with 25.3 million passengers (+5%). Chart 1: Overnight stays across all accommodation types , , , ,000 0 Chart 2: Overnight stays across all accommodation types Top Frankfurt/Main Cologne Dresden Stuttgart Nuremberg Hanover 4,100 4,000 3,100 2,600 2,100 5,100 7,100 10,600 12,400 24, ,000 10,000 15,000 20,000 25,000 30,000 1,000 Chart 3: Passenger volume at German airports Top Frankfurt/Main total Stuttgart Cologne/Bonn Hanover Nuremberg Frankfurt Hahn 48,200 53, , , , , , , , ,600 Source: Federal Statistical Office Source: Federal Statistical Office Source: ADV ,800 56,500 54,800 60, million ,700 68, domestic demand international demand 57.5

3 Chart 4: RevPAR annual comparison Top 5 Frankfurt/ Main Source: STR Global Chart 5: RevPAR annual change Top Hotel market According to the Federal Statistics Office, the hospitality industry (hotels and restaurants) created a gross value of 44.8bn in 2012 and thus contributed a share of 1.7% to German GDP. The hospitality industry increased its turnover in 2012 by a nominal 3.1% (real 1.4%). According to STR Global, despite a weaker global economic situation, the German hotel industry increased its revenue per available room (RevPAR) in 2012 by 5.7% (2011: +4.2%). This development is due to an increase in occupancy of 1.4 %-points to 66.3% and an increase in average daily rate (ADR) of 3.4% to On a European level, with an excellent RevPAR of 92.03, Frankfurt ( 78.82), ( 76.77) and ( 72.49) were above the European average of Only ( 63.80) reported a lower level compared to the European average. The reason for this below-average RevPAR in is the extensive supply of hotels and beds. In December 2012, over 105,000 hotels beds were available in 621 hotels in the federal capital. Despite the highest level of overnight stays in hotels across of over 20.8 million in 2012 (+10.8% compared to 2011), RevPAR remained below the European average due to the extensive supply of accommodation. Frankfurt/ Main Chart 6: Historic ADR development Top (-2) Source: STR Global % According to STR Global, s RevPAR in 2012 was (a rise of 8.5% compared to 2011). Average occupancy was 72.5% (+3.2 %-points) and ADR was (+3.7%). The most important new openings in 2012 included the German market entry of the IHG brand Indigo with the Hotel Indigo on Ku'damm (81 rooms), as well as the Hotel Indigo on Alexanderplatz (153 rooms) and the adjacent Holiday Inn hotel (242 rooms). In addition, the Das Stue Hotel Tiergarten opened with 80 rooms and the one80º Hostel with 132 rooms and 705 beds. A further 7,800 rooms are planned for the hotel market for completion by 2016, of which more than 75% are already under construction. recorded RevPAR growth of 8.1% to This development is due to the rise in hotel occupancy by 2.6 %- points to 64.6% and to the rise in ADR from to (+3.9%). The Messe trade fair centre is a significant demand driver in the city with its world-leading fairs; with over 41 fairs and events, 2012 was again an important year for the Messe. The largest fairs were drupa (314,500 visitors), boot (246,700 visitors) and MEDICA (130,600 visitors). In 2012, there were 20% fewer visitors at drupa than in 2008 due to the downturn in the printing and paper industry. In addition to the Messe, airport, the fourth largest in, contributes to the city s international orientation Frankfurt/Main Source: STR Global

4 number of rooms % 4 In January 2012, the 2-star superior classified B&B Hotel -Hauptbahnhof opened with a total of 124 rooms, followed in April by the Derag Livinghotel with 162 hotel rooms and serviced apartments. This 4-star hotel offers overnight stay facilities for short and long-stay guests. The development pipeline includes approximately 1,200 rooms, anticipated by 2016, of which 840 rooms are already under construction. As an international financial centre, Frankfurt focuses primarily on business travellers. This is reflected in a relatively low occupancy level due to low occupancy on weekends and during holiday periods. At 67.1% the city recorded a higher occupancy level in 2012 compared with the previous year (+1.4 %-points). ADR reached a level of , equating to a rise of 2.8% over 2011 and the second highest room rate amongst the top 5 cities. RevPAR thus achieved a level of (+5.0 %). In January 2012, the Meininger Hotel Frankfurt/Main Airport opened in the Frankfurt district of Gateway Gardens with a total of 168 rooms on seven floors. In addition, the DORMERO Hotel Frankfurt Messe in the Europaviertel opened its doors at the start of 2012, offering 148 rooms. The former City Wing of the InterContinental Frankfurt is currently being renovated and refurbished and will be reopened in the summer of 2013 as a 293 room hotel under the new name of Grand Plaza Frankfurt. Further hotels with a total of around 1,500 rooms are planned, of which almost 1,200 are already under construction. was the only top 5 city to show weaker year-onyear RevPAR growth. According to STR Global, recorded RevPAR growth of 1.9 % to in 2012, which is slight growth compared to the other top five cities. ADR rose by 1.3% to while occupancy rate rose by 0.4 %-points to 74.5%. The Hanseatic City of is traditionally mainly frequented by domestic travellers. Some 80% of hotel demand originates in, just 20% from abroad. Most international guests came from Switzerland, Denmark and the UK. Important new openings in 2012 include the A&O Hostel City with 554 rooms and 1,899 beds, the biggest hostel in the world according to A&O, and the 193 room Barceló as well as the 325 room Scandic EMPORIO. There are a total of around 1,300 rooms currently under construction and a further 3,320 rooms in the planning stage. In the past year, the city of showed significant growth and defended its leading position in terms of RevPAR which stood at In comparison to the other key markets, RevPAR growth was well above-average at 11.5% compared to The main RevPAR driver was the rise in ADR. It increased by 8.9 % to , the highest room rate amongst the top 5 cities. Furthermore, there was a rise in occupancy of 1.8 %-points to 74.8%. Overnight stays increased by 5.4 %, partly due to the high number of congresses and the UEFA Champions League final that took place in Chart 7: Historic occupancy development Top Source: STR Global Chart 8: Hotel future supply ( ) Top 5 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1, Frankfurt/Main Frankfurt/Main rooms under construction rooms planned Chart 9/10: Scandic EMPORIO Hotel Indigo Alexanderplatz Copyright: Scandic EMPORIO Copyright: Hotel Indigo Alexanderplatz

5 Chart 11: Investment volume by type of use 7% 5% 36% 5% 3% Office Graph 12: Hotel investment volume by type of investor* Developer Asset Manager/ Fund Manager Open-ended Fund/ Special Fund Private Investor Corporates Closed-ended Fund Insurance Company/ Pension Fund Listed Property Company/ REIT Property Company Public Sector 44% % Sale % Purchase (40) (20) *Share of investment turnover 2012, % Retail* Industrial Hotel Development Site Others Chart 13: Hotel investment volume by type of transaction The hotel market also benefited from a high proportion of international travellers compared to other cities (46.2% of overnight stays). In particular, the number of overnights from Russia rose by 29.9% to 440,000, Chinese overnights rose to 183,000 (+28.6%) and Middle East overnights by 19.5% to 444,000. Of the hotel openings during the course of 2012, the Hotel Ibis München-Süd (133 rooms) and the Eurostar Book Hotel (201 rooms) are worth mentioning. There are a further 2,200 rooms in the pipeline, of which around 1,700 rooms are still at the planning stage. Hotel investment market After a moderate start during the first half of 2012 there was a distinct run on hotels in in the second half of the year, particularly at year-end. 74% of total transaction volume was generated in the second half of 2012 and 47% in the fourth quarter alone. Overall, total hotel transaction volume of 1.36bn was achieved in 2012, which equates to a rise of 24% compared to 2011 (2011: 1.10bn). The proportion, relative to the total German commercial property market, rose slightly from 5.0% to 5.5%. The transaction market was dominated by international buyers who invested over 900m in the German hotel market. Their share rose from 60% in 2011 to 70% of the invested capital in This equates to a growth of 47% in terms of the total invested volume. Over 500m was invested from countries outside Europe such as Qatar, Singapore, the USA and Israel. Whilst private investors were the largest buyer group in 2011, in 2012 the investor groups consisted mainly of asset managers, private investors and fund managers in almost equal shares. As in 2011, the largest vendor group in 2012 were developers who accounted for around a quarter of vendors. In 2012, CBRE Hotels recorded few portfolio transactions and these represented below 20% of the total market volume. As already seen in 2011, the focus was on single asset transactions which made up more than 80% in each of the last two years. The number of deals above the 5m mark was approximately the same in both 2011 and 2012, at 50 and 51 respectively. The average volume per deal in 2012 rose from 21m to 27m. The largest transaction in 2012 was the Maritim Hotel in which SEB sold for 180m to the Qatar-based investor Al Faisal. Portfolio transactions 19% 5 Single transactions 81% 5

6 Hotel investment turnover Top 5 Investor focus in 2012 was on the top 5 cities which accounted for almost 70% of the total volume or around 920m (2011: 655m). In 2012, was the most important hotel investment market with a transaction volume of over 500m and a share of around 40% of the total German hotel investment market. In Frankfurt, the volume reduced significantly from approx. 350m to 200m compared to 2011 due to the lack of large-scale transactions. In, the result was just under 180m. Sales included the Madison Hotel sold by Axa Investment Managers Deutschland to the Ascott Residence Trust from Singapore and the Motel One -Alster sold to a subsidiary of Real I. S.. CBRE advised on both transactions. Although is one of the most sought after markets worldwide, a transaction volume of only 20m was recorded in the Bavarian state capital due to the limited supply. In transaction volume was also only 20m due to the scarcity of supply. The share of investments outside the top five cities reduced from around 41% in 2011 to 32% in However, in terms of volume, the level remained approximately stable at 450m. Market players in secondary cities are often opportunistic owner-operators such as Grand City, Fattal, HPI and LFPI who often buy hotels in need of capital expenditure and repositioning. As illustrated in the chart below, the main focus was on the acquisition of 4-star hotels (approx. 50%). Chart 14: 2012 Hotel investment volume by city Frankfurt 15% 13% 2% 1% Rest of 32% 37% Chart 15: 2012 Hotel investment turnover by deal size Development of prime yields Due to the relatively low number of transactions compared to the entire commercial property market and the lack of transparency in the market, yields can often only be estimated. In our opinion, the prime yield in 2012 was 5.75%, a fall of 25 basis points compared to Reasons for this included the good location and quality of the properties sold as well as the significant interest in core hotel investments in in Hotels in secondary locations achieved prime yields of 7.0% to 8.0%. We estimate that prime yields will remain at this level in 2013 as demand for core properties will remain high. Chart 16: 2012 Hotel investment turnover by classification 2-stars 15% 5-stars 15% 3-stars 19% 6 4-stars 51%

7 Table 2: Selected single hotel transactions 2012 Hotel Name City Category No. of Rooms Seller Buyer Suite Novotel St. Georg 4-Stars 186 iii-investments Deka Hilton City Mainz 4-Stars 127 MAG Azure Motel One Alster 2-Stars 460 Quantum Real I.S. Park Inn by Radisson Nuremberg 4-Stars 152 GBI Internos Nhow 4-Stars 304 NDC Group of international private investors Courtyard Seestern 4-Stars 215 Gengate Europe Russian private investor Lindner Congress Hotel Frankfurt 4-Stars 303 Lindner-Gruppe Internos Madison 4-Stars 166 Axa Ascott Barcelo St. Georg 4-Stars 193 Barcelo Union Investment MGallery Mondial Am Dom Cologne 4-Stars 207 Accor Internos Lindner Ku damm 4-Stars 146 RBS Axa / Norges Jumeirah (50%) Frankfurt 5-Stars 218 Meyer Bergman KP Investments Table 3: Selected hotel portfolio transactions 2012 Portfolio Name City Category No. of Rooms Seller Buyer Indigo & Holiday Inn Alexanderplatz 3- & 4-Stars 395 Azure Invesco TLG-Hotel-Portfolio, Dresden & Rostock 2- bis 4-Stars TLG Lone Star 7 Maritim & Grand Hyatt 5-Stars 847 SEB Al Faisal 7

8 Outlook Despite the continuing economic turbulence in many European countries, the German hotel market recorded increases in both occupancy and ADR in 2012 and there were very significant rises in a number of key cities. This is particularly welcome news as 2011 was already a good year. We anticipate that 2013 will also be positive in many German cities., in particular, should achieve very good results due to the excellent trade fair year and continually rising tourist demand. continues to be a key market for international investors. We expect a similar level of investment volume for 2013 as in 2012, dependent on the number of owners who are willing to sell. Many large hotels are already officially on the market at the start of 2013 in addition to a number of portfolios. If one or more large portfolios are sold, the 2012 level may even be exceeded. In our opinion, investors with a strong equity base will continue to dominate the market in 2013 as the granting of new loans for hotel property investments will remain limited. Interest rates remain low and market players are increasingly looking for alternative sources of finance. Due to continued high demand for hotels in the core markets, the prime yield is likely to remain at the low level of 5.75%. We also expect that secondary markets may regain importance, due to increasingly attractive yields. Focused service hotels in the 2 to 3-star category are becoming more popular with investors as these achieve higher margins due to their limited food & beverage offer and also perform relatively well during difficult economic times. For more information about this MarketView, please contact: Hotels Olivia Kaussen Senior Director Head of Hotels & CEE CBRE Hotels Isartorplatz t: e: olivia.kaussen@cbrehotels.com Research Dr. Jan Linsin Senior Director Head of Research CBRE Bockenheimer Landstr Frankfurt t: e: jan.linsin@cbre.com Frederik Schwaeppe Associate Director CBRE Hotels Isartorplatz t: e: frederik.schwaeppe@cbrehotels.com Tobias Brandt Senior Analyst CBRE Isartorplatz t: e: tobias.brandt@cbre.com Sabine Lüftenegger Senior Analyst CBRE Hotels Isartorplatz t: e: sabine.lueftenegger@cbrehotels.com We would like to thank Mr. Michael Thalmair, trainee at CBRE Hotels, for his assistance in preparing this report. + FOLLOW US GOOGLE+ FACEBOOK 8 Disclaimer Information herein has been obtained from sources believed reliable. While we do not doubt its accuracy, we have not verified it and make no guarantee, warranty or representation about it. It is your responsibility to independently confirm its accuracy and completeness. Any projections, opinions, assumptions or estimates used are for example only and do not represent the current or future performance of the market. This information is designed exclusively for use by CBRE GmbH clients, and cannot be reproduced without prior written permission of CBRE GmbH. /