Hotel property market

Hotel

Owing to the pandemic, Hannover's tourism plummeted in 2020 as it did all over Germany. With overnight stays of around 2.1 million in the city and surrounding areas, the demand for tourism in the past year was at 1990s levels. As a trade fair city and a hotel location heavily dependent on business travel (approx. 80% of demand), the number of overnight stays in the city of Hannover fell even more sharply than in the surrounding area.

However, Hannover's general attractiveness as a destination is still evident when looking at project developments in the hotel property market. Six hotel projects were completed in 2020 and 2021, and another two in Hannover are under construction and will be operational in 2022. These eight hotels together have approximately 1,300 rooms. A further twelve hotels, increasing bed numbers by up to 2,000 over the next three to five years, are in the pipeline. However, it is currently unclear whether all the projects will be completed as planned.

MARKET MOOD AND TRENDS

Hannover's tourism has grown steadily in recent years. The number of overnight stays in the city and surrounding areas exceeded 4 million per year in 2019. Business travellers coming to Hannover, especially for the major trade fairs, were not the region’s only visitors. An increasing number of city tourists had also been discovering the Hannover Region.

In 2020, numbers dropped to only around 2.1 million guests, and occupancy also fell by more than half. The economic situation for many businesses is more than tense with the first major hotel business announcing that it will permanently cease operations. An absence of business travellers, cancellations of trade fairs and other major events, as well as travel restrictions, have placed extreme pressure on hotels. Easing of restrictions has only partially alleviated the situation.

The sharp drop in demand led to an average room occupancy rate in Hannover of 32%. Compared to the previous year, the rate has therefore fallen by 51%. Because of a lack of events and business guests, the average room rate fell by almost 20% to €82.80. In April 2020, when the Hannover Messe would have normally taken place, net room rates fell by €260 to €87 (in April 2019, the figure was €347).

As a result, the average revenue per available room (RevPAR) in 2020 in Hannover was a low €26.50 and thus far below the revenues needed to cover costs, let alone make a profit. Despite all the difficulties, several hotels with new concepts opened in 2020, so that the number of beds on offer in hotels in Hannover City declined by only around 165 (to around 8,990 beds). In the medium term, rapid recovery of the market is not to be expected. Trade fair business in 2021 will again lack the usual demand and the supply of beds will continue to increase if the new hotels under construction or development in Hannover are completed as planned.

The extent to which the existence of the regional hotel industry is actually at risk depends to a large extent on further incidences of the virus as well as on the prospects of a market recovery. By mid-2021, only around 670,000 overnight stays were registered in the Hannover Region. Many of the leading trade fairs held in Hannover have been postponed until 2022. Visitors to the city will only compensate to a limited extent for the lack of business visitors, especially since reasons to visit the city, such as sporting and cultural events, will probably only have a limited impact on the market's recovery in 2021.

DESPITE ALL THE DIFFICULTIES, SIX HOTELS WITH NEW CONCEPTS OPENED IN 2020 AND 2021.

These challenges will have to be addressed by property owners and potential property investors. In recent years, hotels have been among an increasingly sought-after asset class, also in Hannover. Whether the many projects in the pipeline will actually be carried out remains to be seen. Hotel projects already initiated in Hannover and the surrounding area, fully financed and operator-secured, seem to be on track. However, the future of new projects is difficult to assess for operators, investors and capital providers.

In 2020, hardly any transactions in hotels took place in Hannover. And Hannover is not alone here. Across Germany, transaction volumes in the hotel market slumped by more than half (minus 60%). The increased market momentum that had been anticipated back in 2019 is therefore no longer envisaged for the time being. Investors will need to factor these increased risks into their investment considerations, with corresponding consequences on returns.

All regional market players expect that the hotel industry and thus the hotel property market will take the longest to recover from the impact of the corona crisis. Nevertheless all actors, including those from the hotel and event industry, are confident that Hannover as a destination will be ready as soon as visitor and event numbers begin to recover.

data in detail

Development of hotel businesses 2016 to 2020

Source: State Office for Statistics of Lower Saxony 2021, (annual average values, based on open hotels (excluding hotel garnis))

Development of hotel bed numbers 2016 to 2020

Source: State Office for Statistics of Lower Saxony 2021, (annual average values, based on open hotels (excluding hotel garnis))

Key data for the Hannover hotel market 2016 to 2020

Source: Figures for Hannover city; State Office for Statistics of Lower Saxony, Fairmas performance indicators for the hotel chain industry, 2021

Overnight stays in the Hannover Region 2016 to 2020

Source: State Office for Statistics of Lower Saxony [Landesamt für Statistik Niedersachsen], 2021, Table K7360001