German hospitality market has strong potential for post-Covid19 recovery

The German travel market may have a strong chance of recovering post-COVID-19. (Photo from Unsplash by Illia Cherednychenko)

Due to strong domestic demand, the German hotel and travel market has good chances of recovering quickly once lockdowns ease.

As governments ease lockdowns and restrictions bit by bit, the German travel and hotel sector is getting ready to ramp up again.

We take a look at how COVID-19 impacted the sector’s growth and how quickly experts think it will recover.

Strong domestic travel base

After announcing nation-wide curfews and banning all but essential travel on March 22, 2020, the German government is now working on reopening its economy which includes the country’s large travel and tourism sector.

While nobody can foresee an exact timeline for the reopening, chances are good that when a sense of normality returns, the German hotel industry will recover faster than in some other countries.

This is largely due to Germany’s large domestic and leisure base as well as a strong domestic corporate travel base, second only to France within Europe. This will help hotels get much-needed business even with borders set to remain closed for the foreseeable future.

Numbers from 2018 reveal that Germans booked 70.1 million holidays (a trip of at least 5 days) in that year alone. 27% of that were spent within the country. Now experts predict that this number will grow in 2020 as local destinations absorb pent-up travel demand.

Domestic travel will likely pick up quickly once manufacturing and servicing industries ramp up operations again. This is where the country’s export-oriented economy brings added benefits to the German economy.

Staggering losses put businesses at risk

While strong domestic demand can help the hotel industry after COVID-19, surviving the current dry spell is getting harder, especially for small businesses who don’t have the liquidity reserves of the global hotel behemoths.

The German Chamber of Commerce (DIHK) estimates that businesses in the travel and tourism industry are twice as likely to go bankrupt during this time as the average business in Germany.

“The industry now urgently needs dates and a framework of conditions so that it doesn’t lose summer business on top of the Easter business,” said Olaf Steinhage, chairman of the ZIA hotel property committee.

According to a DIHK survey, over 90% of companies in the hospitality industry and over 80% in the travel industry are currently suffering a complete cessation of their business activities. It remains to be seen how much longer they can go on.

Outlook on hotel project development in Germany

In January and February 2020, hotel transactions reached a value of €1 billion in Germany, according to the Colliers real estate firm’s Q1 overview.

Now, the COVID-19 pandemic has put a damper on what could have otherwise become a record-breaking year in terms of hotel transactions. While its effects have not been fully felt in the hotel real estate market, experts say they are coming soon.

René Schappner, Head of Hotel at Colliers, recently told AHGZ that it was hard to say when things would begin to change. In a recent investor survey, 75% are expecting lower hotel leases while 77% expect asking prices for hotels to drop. However, most hotel developers remain optimistic that the market will bounce back quickly once restrictions ease.