AAAAAAAAAAA. Ulf Templin Managing Partner PKF hotelexperts GmbH Munich

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1 GHN Market Report: Berlin Ulf Templin Managing Partner PKF hotelexperts GmbH Munich Berlin, the capital of the Federal Republic of Germany, is with about 3.4 million inhabitants the largest city in Germany. Apart from its geographical central position within Europe, Berlin has developed to one of the most powerful political centres due to Germany s strong economy and the important role of the German government headed by Bundeskanzlerin Angela Merkel during the European postfinancial crisis. Despite the high political importance of Berlin within Germany and Europe, the all-over economic indicators are below average (e.g. unemployment rate is about 11.3 % in January 2015 compared to 7.00 % on national average). However, Berlin continuously gains economical importance as numerous German companies and globally operating enterprises have their headquarters or important business units in the city. To the strongest industries in the capital belong the metal and electrical industries, mechanical and automotive engineering and the chemical and pharmaceutical industries. Furthermore, tourism is for years the fastest-growing sector, promoting the increase of passenger numbers at airports and trade revenues in Berlin. Beyond that, Berlin s urban development remains strong. A large number of infrastructure renewal projects, new buildings, refurbishments or new uses of properties change the cityscape continuously and contribute to a revaluation of Berlin. The two Berlin s airports, Tegel and Schoenefeld recorded around 28 million passengers in total in 2014 (+6.3 % compared to 2013), the third largest number of passengers in Germany after Frankfurt (59.6 million passengers) and Munich (39.7 million passengers). The new Berlin Brandenburg Airport (BER) with a passenger capacity of 27 million passengers per annum Copyright (c) 2015 Global Hospitality Resources, Inc., San Diego, CA USA. All rights reserved. 1

2 is after some years of delay expected to finally open in The new central airport is expected to have a positive impact on Berlin as a business and tourism destination. With regard to meetings and conventions, Berlin is currently the 5 th most popular site worldwide for association meetings according to the statistics from the International Congress & Convention Association (ICCA). In 2013 it hosted 126,200 events with around 10.6 million participants, including 178 international association conferences. In the first half of 2014 Berlin continued to strengthen its position as a meeting and convention destination hosting about 61,100 events (+2 %) that were attended by around 4,8 million visitors (+2 %). In spring 2014, the International Congress Centrum Berlin (ICC Berlin) with 40,000 m 2 floor space was closed after 35 years of operation for refurbishment works. Instead, a multifunctional venue for trade fairs, conferences and events, the City Cube Berlin, was opened in May With 47 meeting rooms it offers approximately 22,000 m 2 floor space. According to Messe Berlin, 27 guest trade fairs and 25 congresses took place in the City Cube Berlin, the ICC Berlin and the Berlin Expo Center City in 2014, attracting approximately 366,000 visitors. However, a recent study of TNS Infratest has caused discussions about the insufficient capacity of the City Cube and the necessity of building a new congress centre to ensure the market position of Berlin in the MICE segment. Next to its importance as a business and convention destination, Berlin counts to one of Europe s most attractive city tourism destinations in Europe. The Brandenburg Gate, Checkpoint Charlie, the Television Tower, Museum Island with its array of museums, the Kaiser Wilhelm Memorial Church and the KaDeWe (Department Store of the West) are just some of the sights in Berlin. Furthermore, Berlin is considered to be a trend and lifestyle city with its creative districts, fashion scene, contemporary art and a variety of bars, clubs, theatres and shopping places. Last but not least Berlin s unique history as a separated and reunificated city attracts thousands of visitors per year to the city. In November 2014, more than one million of locals and tourists came to celebrate the 25 th anniversary of the Fall of Berlin Wall. Due to the fact that Berlin ranks among the most visited European city break destinations, the city set a new record result in tourism in 2013 for the tenth consecutive time. According to the official accommodation statistics from the Statistical Office for Berlin-Brandenburg, 11.3 million guests visited Berlin and booked 26.9 million nights in 2013 (+4.4 % and 8.2 % respectively Copyright (c) 2015 Global Hospitality Resources, Inc., San Diego, CA USA. All rights reserved. 2

3 compared to 2012). Around 82.7 % (22.3 million) of the total overnights in 2013 were accounted by hotels and hotels garnis 1, an increase in overnights by around 46.4 % since Also in 2014 there are signs of sustained growth. In the first eleven months of 2014, the number of overnights in Berlin has increased by 6.2 % to approximately 26.5 million compared to the same period of 2013, so another record is expected for the year. Due to the balance in the ratio of business and leisure guests, demand in Berlin's hotel market is constant all week. From Monday to Thursday the demand is mainly dominated by business travellers. At the weekends (from Friday to Sunday), individual and group tourists generate the main demand. The strongest months with highest demand for hotel beds are April to October. April, May, September and October are characterised by the strong exhibition and congress business, while summer months are traditionally very popular with tourists. With around 2.5 million overnights in 2014 August registered the strongest demand. The winter months from November to February count traditionally lower in hotel visitors in Berlin. Accounting for around 15.4 million overnights in all accommodation facilities in 2013 (about 57.1 %), the domestic market is the most important source market for Berlin. Foreign demand comes predominantly from the United Kingdom (4.4 % of total overnights), Italy and the USA (both 3.1 %), the Netherlands (2.8 %), Denmark (2.4 %), France (2.3 %) and Spain (2.2 %). However, the increase of international demand is higher than the increase of domestic demand (at 1.7 % in 2013 and at 2.8 % between January and November in 2014 over the same period of the previous year), which shows that Berlin becomes more and more popular by foreign tourists. On the supply-side, a five-year comparison shows a constant increase in total accommodation capacity to 132,600 beds in 786 accommodation facilities in 2013 (+23.8 % and +9 % respectively during the last five years). In 2013, of the 786 accommodation facilities, 532 (around 67.7 %) were hotels and hotels garnis offering 107,578 beds (increase of 11.1 %, respectively 24.8 % since 2009). Among new hotel openings in 2014 are the popular 25hours Design Hotel in part of the Bikini Berlin in City West with 149 guest rooms and the 5-star Steigenberger Hotel Am Kanzleramt with 339 rooms, located directly between the main railway station and the government district. 1 Hotels with breakfast only Copyright (c) 2015 Global Hospitality Resources, Inc., San Diego, CA USA. All rights reserved. 3

4 Despite the rise in supply, the average bed occupancy rates in the Berlin hotel market have been growing since 2010, because demand has increased faster than supply. Since 2009 the average bed occupancy in hotels and hotels garnis has increased by around 8.3 %-points to approximately 56.7 % in In the first eleven month of 2014 it recorded 59.8 % (+1.6 % compared to the same period of 2013). In the coming years further increase of hotel supply in Berlin is expected. Based on our records, there are currently 25 hotel projects planned or under construction in all segments up to the year 2018 with around 5,700 rooms. Furthermore the future BER airport has generated several hotel projects in its surrounding areas, including the Four Points By Sheraton (Bohndorf district) and Moxy Hotel (expected opening in 2015), the Steigenberger Hotel (expected opening in 2016), the Gatelands GL 1 and the Hawridge Park (expected opening unknown). The growing supply in the Berlin hotel market and especially in the budget segment, which is popular with price-sensitive tourists, generates additional pressure on prices. However, in 2014, the hotels listed in a PKF/BDO benchmark study (sample of branded mid-class to luxury hotels) closed the year with an increase of 3.4 % in the average rooms yield (RevPAR) to EUR. This pleasing result was achieved due to a slight rise of the occupancy level of the analysed hotels by 0.6 %-points to 75.8 % and a positive increase of the average net room rate by around 2.6 % to EUR. The reasons for the positive development were the MICE industry and events such as DFB-Pokal, the Festival of Lights, Bambi Award and the celebration of the Fall of Berlin Wall. Nevertheless, the average net room rate in Berlin lied in 2014 about 10,2 % below the Germany-wide-average of EUR. As for the German hotel industry, the Statistisches Bundesamt (department of statistics) reported a total of million overnights in 2013; which represents a rise of 1.1 % over the previous year. The increase was observed in the number of overnights by guests from abroad (+4.5 %, 71.9 million), whereas the number of domestic overnights remained almost unchanged at million. The majority of overnights by foreign tourists in 2013 were generated by tourists from the Netherlands, Switzerland, the United States, the United Kingdom and Italy. Russia and the Arab States of the Gulf were the most important countries in terms of growth in demand (15.5 % and 20.2 % respectively). Between January and November 2014 the number of overnights rose by 3 % to million compared to the same period last year. The Statistisches Bundesamt anticipates further growth by around 3 % to a total of approximately 423 million overnights. Copyright (c) 2015 Global Hospitality Resources, Inc., San Diego, CA USA. All rights reserved. 4

5 The further development of the hotel market in general highly depends on the macroeconomic situation and crises such as the Euro crisis and the Ukraine crisis that have significant influence on the hotel industry and that are quite difficult to predict. However, for 2015, several forecasts are still optimistic and assume further growth for the German hotel market. According to the OECD forecast (Organization for Economic Cooperation and Development) the German economy is expected to grow in 2015 and 2016 by 1.1 % and 1.8 % respectively, which will have a positive impact on all segments of hotel guests travelling within Germany and especially visiting Berlin. Copyright (c) 2015 Global Hospitality Resources, Inc., San Diego, CA USA. All rights reserved. 5