Hotel market Düsseldorf Cartwheeling for joy. Real Estate & Hospitality 3rd Quarter 2014

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1 Hotel market Düsseldorf Cartwheeling for joy Real Estate & Hospitality 3rd Quarter 2014

2 Düsseldorf Economic environment Düsseldorf a city with global focus According to the current Mercer survey, Düsseldorf is one of the most livable cities in the world (ranked 6th). The high quality of life is reflected not only in the city s housing, education, work and gastronomy but also in the general atmosphere of this state capital. The city on the Rhine River is rich in traditional values and customs and plays host to a number of impressive attractions ranging from award-winning architecture, the longest bar in the world, and a shopping culture that is unique in Germany. It also offers many considerable locational advantages, such as its central location, excellent transport infrastructure, the third largest airport in Germany and a strong catchment area. After Frankfurt am Main, Düsseldorf is the second largest banking and financial city in Germany and has a diversified mix of trades and industries. The consulting, finance, ICT and service industry sectors are particularly strong here, which in turn has attracted many international companies, such as L Oréal, McKinsey, Vodafone, ORACLE and TATA Steel. It is therefore no surprise that no other German city has attracted such a high level of foreign investment as Düsseldorf, a city situated just in the middle of the Rhine-Ruhr metropolitan region. The international focus of this gateway city also manifests itself in the largest Japanese settlement in continental Europe and in the rapid growth of the Chinese community. Messe Düsseldorf also plays a significant part in the standing of the city. Since its founding as the North West German Exhibition Company (Nord West Deutsche Ausstellungsgesellschaft) in 1947, there have been many changes. Nowadays, it is considered to be a very important trade fair organizer and is very international in scope. Its areas of expertise include plant, machinery & equipment; retail, skilled crafts & services; medicine & health care; and beauty & lifestyle and leisure. Trade fairs such as K, drupa, boot, MEDICA as well as wire and Tube are among the leading trade fairs in the world. Tourism, which is mainly shaped by business travel, is essentially governed by this regular cycle of trade fairs. Overview Düsseldorf Population (December 2013) 597,102 Area (km²) 217 Unemployment rate (%, June 2014) 8.7 Purchasing power ( per capita, 2013) 25,033 Sources: Office for Statistics and Elections of the State Capital of Düsseldorf, GfK, German Federal Employment Office 2

3 Infrastructure master plans for everything Future Living. Düsseldorf optimization of the housing market The action plan Future Living. Düsseldorf was decided upon in June. It agrees the measures to be taken in order to optimize the housing market and gives concrete form to the city s urban development concept, Düsseldorf enable growth, create the future. It contains 32 measures that aim to create a wide range of living spaces within each price segment, thus meeting the high demand for housing and countering the resulting increases in rent and purchase prices. Moreover, top priority has been given to benefiting society as a whole and topics such as sustainability. According to another master plan, the public squares in Düsseldorf are to be newly designed. After the Oberbilker Markt, other squares that could be considered include Franklinhof, Aachener Platz in Bilk, Klinke in Unterrath, Worringer Platz, Beethovenplatz in Flingern, Konrad-Adenauer-Platz in front of the central train station or Schillerplatz in Düsseltal. Additional important urban development projects also include Quartier Central, Quartier M, Quartier D³ and Andreas Quartier. Another master plan has recently been developed as a result of the worst storm to hit North Rhine-Westphalia in the last decades. The hurricane Ela, which occurred in June this year, destroyed around 40,000 trees. The subsequent reconstruction of the garden city of Düsseldorf is expected to last until 2018/2019. Trade fairs and congresses the most important generators of demand The total exhibition area of Messe Düsseldorf, including open spaces, amounts to 305,400 m². By 2020, all exhibition halls and customer conference rooms are to be completely renovated for around 600 thousand euros. The regular scheduled calendar year of 2013 was a rather poor year for Messe Düsseldorf GmbH. A total of 29 in-house and guest events were organized with 25,126 exhibitors and around 1.2 million visitors. However, the congress sector was able to surpass its figures of the previous year and has experienced steady growth over the last few years. In addition to the marketing of the Congress Center Düsseldorf (CCD), Düsseldorf Congress Sport & Event GmbH (previously Düsseldorf Congress Veranstaltungsgesellschaft mbh) is responsible for Mitsubishi Electric HALLE, CASTELLO, Museum Kunstpalast, Station Airport at Düsseldorf airport as well as the ESPRIT arena and the ISS DOME. A total of 3,189 events with over 2 million participants took place. Among the highlights of 2013 were Europe s largest sport business congress SpoBiS, the German Foundation Congress (der Deutsche Stiftungstag) and the Japan and Anime Convention DoKomi. 3

4 Tourism demand record-breaking developments New standards were set in May In the last ten years, a continual increase in the annual number of arrivals has been possible. The overnight stays only fell in 2009 due to the financial crisis. A total of 2,552 thousand guests were received in 2013, which generated 4,245 thousand overnight stays. The average length of stay seems to have fluctuated around 1.7 days. The results for the first half-year suggest another record year. Arrivals were 6.0% and overnight stays were 10.4% above the figures for the previous year. A new record of 424,866 overnight stays was set in May. This high demand was related to interpack, the German Medical Association, the Japan Day Düsseldorf/NRW and the Special Olympics. Düsseldorf is primarily a trade fair and congress city, but is also able to assert itself as a city travel destination. This year, Düsseldorf Marketing & Tourismus GmbH has focused on the city s culture and shopping experience, for example with events such as the Quadriennale, Schumannfest and the new Kö-Bogen. The most visited attractions include the historic center, the Rhine embankment promenade, the shopping street Königs allee, the Medienhafen in the habour district, the house in which the writer Heinrich Heine was born as well as numerous museums, theaters, churches and the Tonhalle concert hall. Demand Year Arrivals Overnight stays Length of stay (thou.) (thou.) days ,415 2, ,537 2, ,658 2, ,761 3, ,861 3, ,876 3, ,123 3, ,263 3, ,417 4, ,552 4, H ,286 2, CAGR % 5.9% - Source: State Office for Data Processing and Statistics of North Rhine-Westphalia Note: Arrivals/overnight stays in all types of accommodation incl. camping 4

5 DMT marketing focus pays off The proportion of overnight stays by foreigners amounted to 40% in In regard to the internationality of its guests, Düsseldorf thus falls behind Munich, Frankfurt and Berlin. The most important foreign source markets were the Netherlands (11%), the United Kingdom (10%), Russia (8%), the USA (7%), as well as the Arab Gulf states and Italy (each 5%). The way in which demand in Düsseldorf is dependent on the trade fair and congress cycle was demonstrated by the bed occupancy in May. Although this year broke all records even the traditionally very strong October last year was below average. Most overnight stays occurred in autumn, whilst February was the month with the lowest demand. During the week, the beds are generally occupied due to business travelers, whereas occupancy at the weekend is declining. Visitor's origins 60% Germans 40% Foreigners Netherlands UK Russia USA Arabian Gulf States Italy 179, , , ,266 78,673 77,853 Other 938,698 Seasonality 500, , , , , , , ,000 0,000 Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Ø Source: State Office for Data Processing and Statistics of North Rhine-Westphalia Note: Overnight stays in 2013 in all types of accommodation incl. camping 5

6 Tourism supply qualitative growth Expansion in capacity is absorbed by strong demand In the period between 2004 and 2013, there was an increase in supply from 189 to 228 establishments (CAGR 2.1%) and the number of beds increased significantly from 16,598 to 25,216 (CAGR 4.8%). As the average annual growth rates have remained behind demand, the increase in capacity has been well received by the market. This has been demonstrated by the continual increase in bed occupancy since The success of the first half of the 2014 is reflected by a record occupancy of 48.4%. The B&B sector has particularly contributed to this result as they were filled to a capacity of 50.7%. Amongst the most prominent additions are Innside by Meliá (September 2013), Hotel Indigo and Kameha Residence Düsseldorf, which came on the market at the end of last year. This year the opening of Derag Livinghotel Di Medici, which was originally due for completion in 2012, is eagerly awaited. The renovation of this historic town house, whose facade is protected as a historic landmark, has been considerably more complicated than anticipated. As a result, it has been necessary to repeatedly delay the final completion date. However the result will definitely be worth the wait. The hotel in the Mühlenstrasse is about to become a treasure of the city where guests can experience a real taste of history. Beds on offer Year Establishments Beds Bed occupancy , % , % , % , % , % , % , % , % , % , % H , % CAGR % 4.8% - Source: State Office for Data Processing and Statistics of North Rhine-Westphalia Note: No. of establishments/beds in all types of accommodation, incl. camping 6

7 Branded hotels dominate the top segments The following table provides a market segment breakdown of the available rooms in the Düsseldorf hotel market: Rooms on offer * ** *** **** ***** Total Number of rooms in private hotels , ,561 Number of rooms in branded hotels ,023 6,363 1,576 9,695 Total number of rooms ,448 7,254 1,598 13,256 Sources: Düsseldorf Hotel Guide 2014, Deloitte analysis These figures relate to accommodations in the hotel or B&B categories, as documented in the Düsseldorf Hotel Guide and from data collected by Deloitte. Pensions, guest houses and inns have not been included. Those hotels that are not officially recognized by the German Hotel and Restaurant Association DEHOGA were classified according to the establishment s own records, star ratings on popular booking websites like HRS, Trivago or Expedia and, in some cases, our own rankings. According to this evaluation, the number of rooms across all categories amounted to 13,256 in Around 73% of all rooms are provided by branded hotels whereas the remaining 27% are provided by independent hotels. By far, the highest volume of rooms is in the 4-star segment with a total of 7,254 rooms. 1-star hotels are not represented. According to Deloitte rankings, Accor has the largest market coverage with 12.6% of the total volume of rooms in branded hotels. NH is ranked second (7.8%), followed by Meliá (6.4%) and Marriott (6.2%). The rankings in the middle are closely packed together. Leonardo Hotels together with Nikko take the last places on the winners podium of the largest hotel companies in Düsseldorf. Ranking Hotel company Share of branded rooms Accor 12.6% NH 7.8% Meliá 6.4% Marriott 6.2% Carlson Rezidor 5.9% IHG 5.8% Maritim 5.5% Lindner 4.3% Leonardo 4.0% Nikko 4.0% Source: Deloitte analysis 7

8 A successful 2014 The STR Global benchmark figures for the first half of 2014 show that all performance indicators have developed positively in comparison to the previous year. Budget hotels have shown the best performance with a RevPAR growth of 46.6%. In contrast to 2013, 2014 was a major year for trade fairs for Düsseldorf. Accordingly, this also had an influence on the performance of the hotel market. In January, a start in the right direction came from boot which had 248,600 visitors and ensured heavily booked hotels. A notable increase in the net average daily rate in February was due to the EuroShop trade fair, which only takes place every three years. BEAUTY and ProWein are held every year but enjoyed particularly high demand this March. April was rather modest due to the late Easter holidays in many cities but was pushed by wire & Tube, trade fairs which take place every two years. May was a splendid month and enjoyed a new record for overnight stays, which helped to spur on the KPIs in the hotel industry. June was also very respectable due to the 10th annual meeting of the Gesellschaft für Palliativmedizin as well as ASME Turbo Expo. Performance Category Occupancy Average daily rate Revenue per available room H Change YOY H Change YOY H Change YOY 2 3 star hotels 65.1% +13.3% % % 4 star hotels 68.6% +4.9% % % 5 star hotels 68.5% +5.7% % % All hotels 67.6% +6.9% % % Source: STR Global 8

9 Hotel projects Short pipeline Small but excellent The growth in capacity will remain manageable in the next few years. It is expected that only the Derag Livinghotel De Medici will open this year. The Andreas Quartier will follow the trend for serviced apartment buildings. IHG is currently planning two hotels in the city in the budget sector, thus regaining its share of the market following the sale of Holiday Inn City Centre Königsallee to the Fattal Gruppe as part of the Queens Moat deal. Lindner is also to compensate for the loss of the Rhein Residence Hotel after its lease contract expired by constructing a new Asian-style building in the Japanese district. Accor and B&B are also further expanding their market presence in Düsseldorf. Hotel projects Project Operator Location No. of rooms No. of stars Opening Derag Livinghotel Di Medici Derag Hotel and Living Mühlenstrasse Fall/Winter 2014 Holiday Inn Express IHG Am Wehrhahn Summer 2015 Düsseldorf City Centre Andreas Quartier n.d. Mühlenstrasse ca Summer 2015 Mercure Hotel Accor City center /16 B&B Hotel Düsseldorf City B&B Toulouser Allee /2016 Lindner Hotel Lindner Immermannstrasse Spring 2016 Holiday Inn Düsseldorf City Arcadia Toulouser Allee Winter 2016 Source: Deloitte analysis 9

10 It is not only Düsseldorf that is breaking records but also the German hotel transaction market. The Rhine metropolis has helped contribute to this success and ranks among the top locations for hotels. Selected transactions include the above mentioned Holiday Inn Express that was acquired by Dereco for a Dutch Family Office for around 18 million EUR. Another Holiday Inn Express, namely Düsseldorf City North, has been purchased by Apollo Global Management as part of a portfolio transaction. In our next issue, we turn our attention to another important hotel market in North Rhine-Westphalia. Look forward to discovering what s been happening in Cologne! 10

11 Real Estate & Hospitality Your partners at Deloitte WP/StB Michael Müller Partner Tel: +49 (0) Kay Constanze Strobl Manager Tel: +49 (0) Authors Yvonne Brabant Senior Consultant Tel: +49 (0) Carolin Schwendner Tel: +49 (0) Deloitte & Touche GmbH Wirtschaftsprüfungsgesellschaft ( Deloitte ) as the responsible entity with respect to the German Data Protection Act and, to the extent legally permitted, its affiliated companies and its legal practice (Raupach & Wollert-Elmendorff Rechtsanwaltsgesellschaft mbh) use your data for individual contractual relationships as well as for own marketing purposes. You may object to the use of your data for marketing purposes at any time by sending a notice to Deloitte, Business Development, Kurfürstendamm 23, Berlin or kontakt@ deloitte.de. This will incur no additional costs beyond the usual tariffs. Deloitte refers to one or more of Deloitte Touche Tohmatsu Limited, a UK private company limited by guarantee ( DTTL ), its network of member firms, and their related entities. DTTL and each of its member firms are legally separate and independent entities. DTTL (also referred to as Deloitte Global ) does not provide services to clients. Please see for a more detailed description of DTTL and its member firms. Deloitte provides audit, tax, consulting and financial advisory services to public and private clients spanning multiple industries; legal advisory services in Germany are provided by Deloitte Legal. With a globally connected network of member firms in more than 150 countries and territories, Deloitte brings world-class capabilities and high-quality service to clients, delivering the insights they need to address their most complex business challenges. Deloitte s more than 200,000 professionals are committed to becoming the standard of excellence. This communication contains general information only not suitable for addressing the particular circumstances of any individual case and is not intended to be used as a basis for commercial decisions or decisions of any other kind. None of Deloitte & Touche GmbH Wirtschaftsprüfungsgesellschaft or Deloitte Touche Tohmatsu Limited, its member firms, or their related entities (collectively, the Deloitte network ) is, by means of this communication, rendering professional advice or services. No entity in the Deloitte network shall be responsible for any loss whatsoever sustained by any person who relies on this communication Deloitte & Touche GmbH Wirtschaftsprüfungsgesellschaft Issued 09/2014