Although the German hotel market is seeing buoyant demand in 2018, cost increases and rising room supply are likely to put pressure on profits finds a new report
The German accommodation market is in the midst of a strong period of high demand, with the number of overnights stays in German accommodation establishments with 10 or more beds rising from an estimated 436.4 million in 2015 to 459.6 million in 2017. Despite the recently buoyant market, 2018 will see hotel profits in the country under pressure as demand growth from German travelers slows, room supply increases and costs grow says a new report, an excerpt for which can be downloaded for free here.
According to Hotstats data provided for the report, average room rates in Germany have been increasing, rising 2% year-on-year in 2016 and 2.5% in 2017 on the back of stable occupancy rates at around 75% across each of three years. This has allowed profitability to rise gently in those years but further gains will be difficult in 2018.
The primary pressure on hotel profits will come from rising wage bills as the German market is experiencing the lowest unemployment it has seen since Reunification with no sign of suddenly increasing supply. Workers are also becoming more vocal about getting a higher wage packet, leading to labour disputes in several German states thus far in 2018.
Competition for workers could be exacerbated even further by new hotels opening in Germany in 2018. Germany has Europe’s second largest pipeline of hotel rooms and the supply-side expansion will also put competitive pressure on hotel pricing in 2018. Pablo Alonso, CEO for HotStats notes that “Historically Germany has always been an attractive market for hotel investment due to the stability of headline performance levels, which provide a consistent income.
“However, profit levels at hotels in Germany will be challenged in the short term as payroll costs are on the rise as the jobless rate in Germany is at a record low and a 4% increase in minimum wage was implemented in January 2017. Additionally, inflation rates in Germany are at their highest level since 2013, which is driving up Cost of Sales.”
On top of growing wage bills and expanding room supply, demand growth from domestic German consumers, who power the market, is likely to be softer as they rediscover their love of international travel and feel confident to book previously shunned destinations. Already in 2017 interest in outbound travel was rising and concerns about safety when abroad were diminishing notes the report.
“This trend will likely accelerate in 2018,” says Alex Hadwick, Head of Research at EyeforTravel. “Whilst rising wages across the German economy means more costs for businesses, it also marks out a very healthy German consumer. Unfortunately for German accommodation providers more of this demand looks like it will be directed outside Germany in 2018 than in 2016 and 2017. Forward booking indicators appear very strong currently and the return of Turkey to growth in particular should lure away German consumers.”
You can download an excerpt from the report by clicking here. Use this free excerpt from our German Travel Consumer 2018 Report to understand the trends shaping German destination choices and spending patterns both at home and abroad in 2018.
- Detailed analysis of Germany’s economy and its ramifications for consumer travel spending.
- More than 80 charts, figures and tables of data detailing the state of the German travel consumer.
- Outbound and domestic travel market overviews and outlooks.
- A breakdown of the German journey to booking, including lead times, key apps and most popular websites.
- Age and location breakdowns for key online behaviors, destination preferences and spending.
- Trends in German device ownership and usage.
- An overview of the state of Germany’s travel industry.
- Forecasts and outlooks for technologies, destinations, and market growth.
- Data taken from more than 80 different sources.