Investors return to German hotels, but risks remain

Group 1: Market Revival - The German hotel investment market is showing signs of revival in 2025, with increased capital flowing back into properties and portfolio deals after several muted years [1] - Hotel transaction volume in Germany reached approximately €1.58 billion between January and September 2025, marking a 68% increase compared to the same period in 2024, although still below the long-term average [2] - Prime hotel yields have remained stable at about 5.5% since late 2023, indicating that pricing for high-quality assets has settled [3] Group 2: Investment Concentration - Most recent deals in the German hotel investment market have involved single assets rather than large portfolios, with nearly two-thirds of the volume concentrated in the seven largest cities: Berlin, Munich, Hamburg, Frankfurt, Cologne, Düsseldorf, and Stuttgart [3] - Munich and Berlin continue to attract both domestic and international capital due to their strong mix of business, trade fair, and leisure demand [3] Group 3: Sentiment and Development - The HospitalityInside Investment Barometer indicates a recovery in the Development Index, with around 30% of respondents rating development conditions as good or very good, up from 17% previously [4] - This suggests that more projects are being viewed as viable in the German hotel investment market [4][5] Group 4: Operational Challenges - Despite stronger investment numbers, the operational outlook for hotels in Germany is less encouraging, with hospitality revenues falling by 9.3% in July 2025 compared to the same month a year earlier [6] - Nearly a third of businesses rated their booking situation for August and September as poor or very poor, while only about a quarter described it as good or very good [7] - The main challenges facing the German hotel industry include weaker real consumer spending and sharply higher costs, with operators reporting rising expenses for labor, food, beverages, and energy [7]