The Hospitality Real Estate Market After Covid-19

IMPACTS AND CONSEQUENCES FOR INVESTORS

Hotel real estate has become a trend asset class over the past years. Before Corona, it was held in similarly high regard by investors as residential real estate. Demand for the latter remained unbroken during the Corona period – and continues to be. But what about gastronomy real estate? Are its operators and owners affected by the shutdown in the same way as retail?

Hotel real estate as a popular investment class before the Corona pandemic

Recently still a top asset class: hotel real estate. Gastronomy real estate and specifically hotels have developed into a popular asset class and established themselves as a permanent fixture in the portfolios of major investors. According to CBRE, hotels were still traded for less than one billion euros in Germany in 2019. Already nine years later, the volume had risen to around five billion euros. Can the Corona crisis stop this rapid price development? It is not possible to make serious future forecasts in such a short time. In the short term, however, a clear picture is emerging.

Corona has hit restaurateurs and hoteliers just as hard as retailers. Due to missing revenues, gastronomy real estate owners must accept deferred rents and possibly further financial losses. The tenants or operators of restaurants, hotels, guesthouses and cafés simply were not or are not able to generate the required revenues.

Will prices continue to rise?

Empty hotel rooms during the shutdown with ongoing operating costs

During the shutdown, hotels remained empty. Costs continued to accrue. 10 billion in lost revenue

10 Billion in Lost Revenue

According to estimates by the German Hotel and Restaurant Association (Dehoga), a total of 223,000 businesses in Germany had to cope with around ten billion euros in lost revenue by the end of April alone. Around 70,000 businesses are now even threatened with insolvency.

For gastronomy real estate investors, the situation is consequently critical. Until recently, the hotel industry was still booming. According to CBRE, the transaction volume from January to March rose 31 percent year-over-year to a solid 925 million euros. The high transaction volume reflects the exuberant market sentiment before the pandemic.

Poor sentiment

The outlook for hotel investors is all the more grim now. Many financial experts and brokers for gastronomy real estate expect significant impacts on the real estate market in the short and medium term, with bated breath. Several industry studies also point to this. For example, the bulwiengesa real estate climate index fell by 57 percent in April for the hotel sector (compared to the beginning of the year). The company Colliers International conducted an investor survey and received clear feedback: it is assumed that rents and purchase prices for hotels will fall. More than 90 percent of the investors surveyed stated this.

Chart: Over 90 percent of investors expect falling rental and purchase prices

A survey by Intreal paints a similar picture: 35 fund managers were surveyed. The evaluations show that the fund industry generally assumes a temporary effect for real estate. However, the forecasts vary greatly within the different types of use. While they expect fewer negative effects especially for residential real estate, more than 50 percent of the managers expect that hotel prices will fall most sharply. It remains to be hoped that Covid-19 cannot bring down the elevated asset class of hotels.

Prices for hotels

Often the owners of gastronomy real estate are institutional investors and funds. They now have to deal with rent deferrals, which hopefully can be repaid. However, the industry also fears rental losses resulting from insolvencies.

No value correction yet

It can be viewed positively that real estate appraisers have not yet made any reductions in values. – Perhaps because the long-term effects are still not foreseeable.

The current situation also offers many opportunities. Many owners of gastronomy real estate are now deciding to sell their property. Often these hotels, restaurants, guesthouses and taverns are not officially brought to the market, but are only offered for purchase or sale by brokers for gastronomy real estate. Therefore, if you are interested in a high-quality gastronomy real estate property, it is worthwhile to consult a well-networked gastronomy real estate broker.