Half-year results from the HotelBenchmark Survey by Deloitte & Touche reveal that the German hotel market continues to suffer from the current weak economic climate. During the first six months of 2003 German hotels only managed to report positive revPAR (room revenue per available room) growth in one month; May- compared to the same period in 2002. All German hotels tracked on the survey experienced a decline in revPAR of seven percent during the first six months of the year and unfortunately it appears as though it will take some time before a recovery is evident.
Of the 50 markets tracked on the German edition of the HotelBenchmark Survey only four cities reported any positive revPAR growth during the half of the year. The winners were Bremen, Hannover, Schwerin and Rostock where revPAR increased by one, eight, five and eight percent respectively. All four cities benefited from non-annual congresses and fairs. All the other cities tracked on the survey reported a decline in revPAR during this period, with seven markets experiencing double-digit falls. Worst hit were hotels in Dusseldorf where two major tri-ennial fairs (Interpack and EuroShop) occurred in February and April 2002. This explains why the comparable performance in February and April 2003 was so poor. As a result, the city experienced a 26 percent fall in revPAR during the first half of 2003 compared to the prior year. Whilst demand levels have fallen in all German hotels it is average room rates that have come under the most pressure. During the first half of 2003 all German hotels reported a five percent decline in average room rate to reach €79 Euros compared to a two percent fall in occupancy, which was down to 56 percent.
The decline in revPAR is directly impacting the profitability of German hotels. During the first half of 2003, German hotels recorded a decline in Income before Fixed Charges (IBFC) on a per available room basis of 11 percent,with hotels only managing to achieve profit levels of €4,203 IBFC per available room.
Bernd Geyer, Chief Executive Officer of the German Hotel Association (IHA), who endorse the HotelBenchmark Survey noted that “German city hotels, especially, have continued to be under the strain of the overall weak economic situation in Germany and with a few exceptions all German cities tracked on the HotelBenchmark Survey have reported losses in occupancy and average room rates compared to 2002. The outlook may have improved slightly for some German cities, but with continuous weak predictions for the German economy, the hotel market looks set to continue to under perform its European counterparts. Luckily, hotels in German holiday regions and resort hotels appear to be benefiting this summer from increased domestic demand and this should be reflected in their performance numbers at the end of the summer.”
The challenges faced by the German hotel market, especially by hotels in city-centre locations, result from a multitude of factors. Increasing hotel supply in many cities is further compounding external factors, such as the weak domestic and global economic conditions. The Economic Intelligence Unit predicts that German real Gross Domestic Product (GDP) growth will only improve by 0.1 percent in 2003 and by 1.4 percent in 2004. Given that the German economy is the largest in Europe and such a large number of its population travel abroad, the health of the German economy is likely to have far reaching effects on hotel performance in other European countries. Although, the latest publication from the German ifo - Institute for Economic Research –indicates some positive sentiment is returning to the market, overall it believes that growth will be stagnant during 2003 with an improvement not forecasted until third quarter 2004.
However, for a limited number of German cities there is some glimmer of hope on the horizon at least in the short term, as many bi- and tri-ennial fairs are scheduled for autumn 2003 and 2004. These are positive influences, but will only provide short-lived improvement in the overall market.
Julia Felton, Executive Director of the HotelBenchmark Team at Deloitte & Touche believes, “that the German hotel market will not experience any real growth until 2005, and then recovery is very dependant on an overall improvement in macro-economic conditions. Seasonally adjusted revPAR performance for the German hotel industry reveals negative revPAR growth since December 2001, which leads us to believe that a recovery in revPAR will take some time.”