After an impressive 4.7% increase in revenue per available room (revPAR) during 2004, German hoteliers had high expectations for 2005.

However, year end results from the HotelBenchmark™ Survey by Deloitte reveal that hotel performance slowed markedly during 2005. RevPAR grew only marginally, up 1.6%, with average room rate declines being offset by an improvement in occupancy.

However, 2006 is the start of an exciting year for the tourism industry in Germany. Prospects look bright as the country is buzzing with the anticipation of the FIFA World Cup and the hotel industry is gearing up to welcome its first football fans. However, what remains to be seen is how hoteliers will really score at the final whistle.

Below average revPAR growth

At 1.6%, Germany's revPAR growth in 2005 lagged behind the European average of 4.3%. Whilst across the whole of Europe both occupancy and average room rate growth fuelled the increase in revPAR, the major Western European economies all experienced very different performances.

In Germany the 2.4% increase in occupancy was very impressive, especially coming on the back of a 4.3% rise in 2004, however at 61.5% German hotels still achieve the lowest occupancy of any of the major European countries. This combined with a fall in average room rates of 0.8%, (as hoteliers struggled to maintain the growth that they had experienced in 2004), resulted in German hotels achieving a revPAR of just €50, the lowest revPAR across Europe.

Like Germany, hotels in Spain also suffered from a fall in average room rates of 0.5%, and this combined with only a marginal increase in occupancy of 1.6% left revPAR up just 1.1%. Conversely, hotels in the UK experienced a 3.3% improvement in average room rates – in part due to the preferential exchange rates – but this was curtailed by 0.5% decline in occupancy. The UK was the only country in Western Europe to report a decline in occupancy primarily due to loss demand in London following the July 7th bombings.

Key European countries – revPAR percentage change 2005 vs. 2004

Source: HotelBenchmark™ Survey by Deloitte

Economic growth continues

Gross Domestic Product (GDP) continued to grow in 2005 for the second consecutive year, mirroring the trend in revPAR growth. However, at 0.9% GDP growth was nearly half that achieved in 2004, when the economy grew 1.6%. Although exports remain the main driver of economic growth in Germany, improvements in consumer and business sentiment and increasing domestic demand are all helping the economy recover. Short term prospects according to the Economist Intelligence Unit (EIU) look positive with GDP estimated to grow by 1.7% in 2006 and 2007.

However, there remains one cloud on the horizon for 2007 as the newly elected German government have agreed to increase the country's value added tax from 16% to 19%. By taking this step, alongside additional reforms and public spending consolidation, the government hopes to regain the Germany's position as one of the top three European nations by 2015.

Improving tourist numbers

Tourism numbers are also continuing to improve across Germany. Preliminary numbers from the World Tourism Organisation (UNWTO) estimate that international visitor arrivals increased 6.5% in the year-to-November compared to the same period in 2004. This is better than the European average, which UNWTO estimate is 4.3%.

Furthermore, data from Destatis, the German statistics office, reveals that domestic and foreign overnight stays grew by 1% and 6% respectively resulting in total overnight stays of 344m. It is encouraging to see that domestic demand, which accounts for over 86% of the overnight stays, grew in 2005 after declining in 2004.

Mainly positive results for German cities

Of the 21 cities tracked by the German edition of the HotelBenchmark™ Survey five markets experienced revPAR declines in 2005. Berlin, Düsseldorf, Essen, Munich and Nuremberg all performed below 2004 levels.

As can be seen in the graph below, the top three performing cities in 2005 were Dresden, Hannover and Mannheim. A number of visitors were attracted to Dresden in February to mark the 60th anniversary of Dresden's destruction during the Second World War. Then in October the famous Frauenkirche (the city's church) was re-opened having been restored to its former glory.

Whilst 2005 was a favourable trade fair year for hotels in Hannover, the biennial trade fair cycle affected hotel performance in Essen and Düsseldorf where revPAR declined compared to 2004. Both cities had an excellent April with the Interpack fair; however this could not offset the declines in March, May and October. Events such as the Drupa – Print Media Fair which take place every four years and the triennial K-International Fair were not held in 2005.

Germany's winners and losers – revPAR percentage change 2005 vs. 2004

Source: HotelBenchmark™ Survey by Deloitte


Welcomed World Cup boost

Despite the challenges faced by German hoteliers in 2005, the FIFA World Cup, being hosted by the country this summer could finally bring a smile to their faces. The German tourist board (DZT) estimates the country will benefit from 5m additional overnight stays from the 10m visitors attending the championship. The FIFA World Cup will run from 9 June to 9 July. The games will be played across 12 cities - kicking off with the first match in Munich and Berlin will host the final.

In addition, each national team plus their representatives have chosen a home base from 12 cities. Cologne will welcome Brazil, Dusseldorf will host the Mexican team and Argentina will stay in Frankfurt. The ‘World will be welcomed as friends' is the German motto for the World Cup.

Currently the World Cup Accommodation Service (WCAS) is predicting that average room rates will reach €185 (including tax) and that occupancy levels will be between 70-80% during the four weeks of the tournament. WCAS assists fans with booking hotel accommodation and had taken allocations at 550 hotels. Currently, around 38% of WCAS room allocations are reserved. The remaining rooms were returned to hoteliers at the end of February for them to market.

And the winner is…

The FIFA World Cup will focus the world's attention on Germany. Whilst the country is expected to benefit from increasing visitor numbers and a boost to the tourism industry, German hoteliers should experience impressive growth in performance during the four weeks of the tournament. Daily HotelBenchmark™, will be monitoring how each of the cities fares during the World Cup.

The German hotel association (Hotelverband Deutschland IHA) predicts a 3% growth in occupancy with a slight increase in average room rates in 2006. With economic fundamentals like GDP growth and consumer confidence moving upwards, 2006 looks set to be an important year for German hoteliers. However, we will have to wait until the whistle is blown for full time at the end of the year to see what really happens to the hotel industry.

Note: All analysis in Euros.