GHN Market Report: Berlin

Berlin, the capital of the Federal Republic of Germany, is with about 3.5 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 (elected for another period of four years as German chancellor) to solve Europe’s financial problems.

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 11.2 % in Dezember 2013 compared to 6.7 % 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, such as Deutsche Bahn, the second largest air carrier of Germany AirBerlin, Bayer HealthCare Pharmaceuticals, Axel Springer and Siemens. Furthermore, the city became not only one of the most important business locations in the media and entertainment industry; it is also an important location for health economy in Germany.

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 construction of the development of the new Berlin Brandenburg Airport (BER) is expected to have a positive impact on Berlin as a business- and tourism destination. Since 2006, the ambitious project is under construction but is after further delays not expected to open thoroughly before 2015. Merely, a part-opening of the north wing is planned for 2014. The two airports, Tegel and Schoenefeld recorded around 26.3 million passengers in total in 2013 (+4.2 % compared to 2012), the third largest number of passengers in Germany after Frankfurt (57.5 million) and Munich (38.4 million). When BER starts operations – next to the Schoenefeld airport – Tegel airport will be closed.

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Ulf TemplinManaging PartnerPKF hotelexperts GmbH Munich

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With regard to meetings and conventions, Berlin is one of the most important international sites and ranks with its International Congress Centre ICC on the 4th place of the world’s leading congress destinations according to statistics of ICCA (International Congress & Convention Association). The exhibition and conference centre in Berlin is one of the largest in Germany and recorded approximately 2.4 million visitors, 511 congresses and 95 fairs in 2012. Berlin’s importance as conferences destination is demonstrated by the opening of further convention and event centres: Next to new BER airport the Berlin ExpoCenter Airport was opened in 2012 with a capacity of more than 20,000 m² of hall space and around 129,000 m² of outdoor areas. Furthermore a new congress and event area City Cube is planned to open in the first quarter of 2014.

Next to its importance as business and convention destination, Berlin has become one of the 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 separated and reunificated city attracts thousands of visitors per year to the city.

Due to the fact that Berlin ranks among the most visited European city break destinations, the numbers of arrivals and overnight stays set a new record in 2012 (latest figures available for a whole year). According to the figures supplied by the Berlin-Brandenburg Statistics Office, all accommodation facilities (excl. camping) in Berlin recorded a total of around 10.8 million arrivals (+10%) and 24.9 million overnights (+11.4%) in 2012. Around 81.8% (20.4 million) of the total overnights were accounted by hotels and hotels garnis1, an increase in overnights by around 42.8% between 2008 and 2012.

For 2013 another record is expected: According to actual figures (November y-t-d), Berlin counted about 25 million overnights already, which is 8.1 % more than in November 2012.

The ratio of business and leisure guests in Berlin is balanced; consequently 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 the highest hotel demand are April to

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1 Hotels with breakfast only

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October, due to the exhibition and congress business in April and May as well as September and October and a strong tourist demand during the summer months.

Accounting for around 14.3 million overnights in all accommodation facilities, the majority of guests (about 57.5%) were German, i.e. the domestic market is the most important source market for Berlin. Foreign demand comes predominantly from the United Kingdom, Italy, the USA, the Netherlands, Spain, France, Denmark and Switzerland.

On the supply-side, a five-year comparison shows a constant increase in total accommodation capacity to 125,569 beds in 772 accommodation facilities in 2012 (+28.9%, respectively +17.1 % during the last five years). In 2012, of the 772 accommodation facilities, 517 were hotels and hotels garnis offering 101,433 beds (increase of 18%, respectively 30.1% since 2008).

Due to the increasing supply and hence increasing competition, the average bed occupancy rates in the Berlin hotel market were declining after a peak of around 51.1% in 2007 to around 50.0% in 2008 and 48.4% in 2009. Since 2010, figures are recovering again and increased to a bed occupancy record of 54.8 % in 2012.

The increase of hotel supply in Berlin is expected to continue significantly in the next years. There are currently around 31 hotel projects planned in all segments up to the year 2017, with around 6,800 rooms. Most hotels planned will be positioned in the budget and mid-class segment, but projects in the first-class to luxury segment will change the hotel landscape in Berlin. Furthermore the new BER airport keeps generating additional hotel projects in its surrounding areas, for example the Moxy Hotel, the Gatelands GL 1 and the Steigenberger Hotel with expected openings in 2014 and 2015 respectively.

The increasing competition also raises the pricing pressure in the Berlin hotel market. Yet, the increasing demand helped the hotels listed in a PKF benchmark study (sample of branded mid-class to luxury hotels) to record a slight increase in the average net room rate by around 3.5 % to 87.42 EUR (after a decline of 1.3 % in 2011). At the same time, room occupancy of the analysed hotels rose by around 4.3% to 77.4%. Consequently, the average rooms yield (RevPAR) increased considerably by around 8% to 67.66 EUR. So in contrast to 2011, Berlin recognized a distinct positive development in 2012, also compared to the Germany-wide collected data: In total, the German hotels in the PKF benchmark study realized an increase in the RevPAR by around 4.8 % to 62.25 EUR.

After the significant recovery in 2012, the performance of the Berlin hotels in the PKF benchmark study changed for the worse again in the first eleven months of 2013. While

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occupancy remained relatively stable with a slight increase of 0.9 % to 78.8 %, the average net room rate deteriorated by 3.6 % between January and November 2013 to 87.92 EUR. Thus, the resulting RevPAR also declined by 2.7 % to 69.28 EUR.

In total, albeit at a slower rate, the positive development of the German hotel industry in 2012 seems to last in 2013. Presumably, the record of around 400 million overnights in Germany will be achieved again in 2013: According to the Statistisches Bundesamt (department of statistics), there was another slight increase of approx. 1% in overnights between January and November 2013 compared to the previous year’s period, in which the record of 407,2 million overnights was compassed. Hence, the Statistisches Bundesamt expects the number of overnights to rise to 412 million overnights in 2013. While the demand of domestic guests remained relatively stable (+1%) the overnights of foreign guests increased by around 5 % which shows a continuing upswing in international demand. This upward trend was exceptionally apparent in Berlin where the number of overnights generated by international travellers rose by 8.7 % in the first eleven months of 2013, compared to the same period in 2012.

The further development of the hotel market in general highly depends on the macroeconomic situation and the euro crisis that have significant influence on the hotel industry and that are quite difficult to predict. However, for 2014, several forecasts are still optimistic and assume further growth for the German hotel market. The OECD (Organization for Economic Cooperation and Development) estimates a growth of the German economic of 2 % for 2014, which sets hope for the positive trend in business travelling within Germany to continue. Despite the negative image impacts of the repeated postponement of the new airport’s opening, it will set new demand impulses by improved air traffic connections. Furthermore, due to the balanced proportion of business and leisure demand in Berlin and as being one of Europe’s most visited cities, Berlin’s hotel market is expected to remain stable and healthy in the upcoming year.

Mr. Templin is a regular contributor of market insights for Berlin for GlobalHotelNetwork.com.

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