Hotel market DüsseldorfCartwheeling for joyReal Estate & Hospitality3rd Quarter 2014

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Düsseldorf –Economic environment

Düsseldorf – a city with global focusAccording to the current Mercer survey, Düsseldorf is one of the most livable cities in the world (ranked 6th). The high quality of life is reflected not only in the city’s housing, education, work and gastronomy but also in the general atmosphere of this state capital.

The city on the Rhine River is rich in traditional values and customs and plays host to a number of impressive attractions ranging from award-winning architecture, the longest bar in the world, and a shopping culture that is unique in Germany. It also offers many consider-able locational advantages, such as its central location, excellent transport infrastructure, the third largest airport in Germany and a strong catchment area. After Frank-furt am Main, Düsseldorf is the second largest banking and financial city in Germany and has a diversified mix of trades and industries. The consulting, finance, ICT and service industry sectors are particularly strong here, which in turn has attracted many international com-panies, such as L’Oréal, McKinsey, Vodafone, ORACLE and TATA Steel. It is therefore no surprise that no other German city has attracted such a high level of foreign investment as Düsseldorf, a city situated just in the middle of the Rhine-Ruhr metropolitan region. The inter-national focus of this gateway city also manifests itself in the largest Japanese settlement in continental Europe and in the rapid growth of the Chinese community.

Messe Düsseldorf also plays a significant part in the standing of the city. Since its founding as the North West German Exhibition Company (Nord West Deutsche Ausstellungsgesellschaft) in 1947, there have been many changes. Nowadays, it is considered to be a very important trade fair organizer and is very international in scope. Its areas of expertise include plant, machinery & equipment; retail, skilled crafts & services; medicine & health care; and beauty & lifestyle and leisure. Trade fairs such as K, drupa, boot, MEDICA as well as wire and Tube are among the leading trade fairs in the world. Tourism, which is mainly shaped by business travel, is essentially governed by this regular cycle of trade fairs.

Overview

Düsseldorf

Population (December 2013) 597,102

Area (km²) 217

Unemployment rate (%, June 2014) 8.7

Purchasing power (€ per capita, 2013) 25,033

Sources: Office for Statistics and Elections of the State Capital of Düsseldorf, GfK, German Federal Employment Office

Infrastructure –master plans for everything

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Future Living. Düsseldorf –optimization of the housing marketThe action plan “Future Living. Düsseldorf” was decided upon in June. It agrees the measures to be taken in order to optimize the housing market and gives concrete form to the city’s urban development concept, “Düs-seldorf 2020+ – enable growth, create the future”. It contains 32 measures that aim to create a wide range of living spaces within each price segment, thus meeting the high demand for housing and countering the result-ing increases in rent and purchase prices. Moreover, top priority has been given to benefiting society as a whole and topics such as sustainability.

According to another master plan, the public squares in Düsseldorf are to be newly designed. After the Ober-bilker Markt, other squares that could be considered include Franklinhof, Aachener Platz in Bilk, “Klinke” in Unterrath, Worringer Platz, Beethovenplatz in Flingern, Konrad-Adenauer-Platz in front of the central train station or Schillerplatz in Düsseltal. Additional impor-tant urban development projects also include Quartier Central, Quartier M, Quartier D³ and Andreas Quartier.

Another master plan has recently been developed as a result of the worst storm to hit North Rhine-Westphalia in the last decades. The hurricane Ela, which occurred in June this year, destroyed around 40,000 trees. The sub-sequent reconstruction of the garden city of Düsseldorf is expected to last until 2018/2019.

Trade fairs and congresses –the most important generators of demandThe total exhibition area of Messe Düsseldorf, includ-ing open spaces, amounts to 305,400 m². By 2020, all exhibition halls and customer conference rooms are to be completely renovated for around 600 thousand euros. The regular scheduled calendar year of 2013 was a rather poor year for Messe Düsseldorf GmbH. A total of 29 in-house and guest events were organized with 25,126 exhibitors and around 1.2 million visitors. However, the congress sector was able to surpass its figures of the previous year and has experienced steady growth over the last few years. In addition to the marketing of the Congress Center Düsseldorf (CCD), Düsseldorf Congress Sport & Event GmbH (previously Düsseldorf Congress Veranstaltungsgesellschaft mbH) is responsible for Mitsubishi Electric HALLE, CASTELLO, Museum Kunstpalast, Station Airport at Düsseldorf airport as well as the ESPRIT arena and the ISS DOME. A total of 3,189 events with over 2 million participants took place. Among the highlights of 2013 were Europe’s largest sport business congress SpoBiS, the German Foundation Congress (der Deutsche Stiftungstag) and the Japan and Anime Convention DoKomi.

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Tourism demand –record-breaking developments

New standards were set in MayIn the last ten years, a continual increase in the annual number of arrivals has been possible. The overnight stays only fell in 2009 due to the financial crisis. A total of 2,552 thousand guests were received in 2013, which generated 4,245 thousand overnight stays. The average length of stay seems to have fluctuated around 1.7 days. The results for the first half-year suggest another record year. Arrivals were 6.0% and overnight stays were 10.4% above the figures for the previous year. A new record of 424,866 overnight stays was set in May. This high demand was related to interpack, the German Medical Association, the Japan Day Düsseldorf/NRW and the Special Olympics.

Düsseldorf is primarily a trade fair and congress city, but is also able to assert itself as a city travel destina-tion. This year, Düsseldorf Marketing & Tourismus GmbH has focused on the city’s culture and shopping experience, for example with events such as the Qua-driennale, Schumannfest and the new Kö-Bogen. The most visited attractions include the historic center, the Rhine embankment promenade, the shopping street Königs allee, the Medienhafen in the habour district, the house in which the writer Heinrich Heine was born as well as numerous museums, theaters, churches and the Tonhalle concert hall.

Demand

Year Arrivals Overnight stays Length of stay

(thou.) (thou.) days

2004 1,415 2,534 1.8

2005 1,537 2,688 1.7

2006 1,658 2,902 1.8

2007 1,761 3,046 1.7

2008 1,861 3,360 1.8

2009 1,876 3,220 1.7

2010 2,123 3,588 1.7

2011 2,263 3,843 1.7

2012 2,417 4,056 1.7

2013 2,552 4,245 1.7

H1 2014 1,286 2,198 1.7

CAGR 2004–2013 6.8% 5.9% -

Source: State Office for Data Processing and Statistics of North Rhine-Westphalia

Note: Arrivals/overnight stays in all types of accommodation incl. camping

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DMT marketing focus pays offThe proportion of overnight stays by foreigners amounted to 40% in 2013. In regard to the internationality of its guests, Düsseldorf thus falls behind Munich, Frankfurt and Berlin. The most important foreign source markets were the Netherlands (11%), the United Kingdom (10%), Russia (8%), the USA (7%), as well as the Arab Gulf states and Italy (each 5%). The way in which demand in

Düsseldorf is dependent on the trade fair and congress cycle was demonstrated by the bed occupancy in May. Although this year broke all records – even the tradition-ally very strong October – last year was below average. Most overnight stays occurred in autumn, whilst February was the month with the lowest demand. During the week, the beds are generally occupied due to business travelers, whereas occupancy at the weekend is declining.

Other

Italy

Arabian Gulf States

USA

Russia

UK

Netherlands

60% Germans 40% Foreigners

179,395

129,916

165,618

77,853

78,673

126,266

938,698

Visitor's origins

Source: State Office for Data Processing and Statistics of North Rhine-Westphalia

Note: Overnight stays in 2013 in all types of accommodation incl. camping

0,000

100,000

200,000

300,000

400,000

500,000

ØDecNovOctSepAugJulJunMayAprMarFebJan

288,429

422,393

354,624

Seasonality

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Tourism supply –qualitative growth

Expansion in capacity is absorbed by strong demandIn the period between 2004 and 2013, there was an increase in supply from 189 to 228 establishments (CAGR 2.1%) and the number of beds increased sig-nificantly from 16,598 to 25,216 (CAGR 4.8%). As the average annual growth rates have remained behind demand, the increase in capacity has been well received by the market. This has been demonstrated by the continual increase in bed occupancy since 2010. The success of the first half of the 2014 is reflected by a record occupancy of 48.4%. The B&B sector has par-ticularly contributed to this result as they were filled to a capacity of 50.7%.

Amongst the most prominent additions are Innside by Meliá (September 2013), Hotel Indigo and Kameha Resi-dence Düsseldorf, which came on the market at the end of last year.

This year the opening of Derag Livinghotel Di Medici, which was originally due for completion in 2012, is eagerly awaited. The renovation of this historic town house, whose facade is protected as a historic landmark, has been considerably more complicated than antici-pated. As a result, it has been necessary to repeatedly delay the final completion date. However the result will definitely be worth the wait. The hotel in the Mühlen-strasse is about to become a treasure of the city where guests can experience a real taste of history.

Beds on offer

Year Establishments Beds Bed occupancy

2004 189 16,598 40.5%

2005 206 18,728 40.5%

2006 204 18,602 41.5%

2007 217 21,218 42.5%

2008 219 21,882 42.6%

2009 218 22,523 40.0%

2010 217 22,929 43.1%

2011 225 23,914 44.3%

2012 229 24,704 45.2%

2013 228 25,216 47.6%

H1 2014 229 25,057 48.4%

CAGR 2004–2013 2.1% 4.8% -

Source: State Office for Data Processing and Statistics of North Rhine-Westphalia

Note: No. of establishments/beds in all types of accommodation, incl. camping

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Branded hotels dominate the top segmentsThe following table provides a market segment break-down of the available rooms in the Düsseldorf hotel market:

These figures relate to accommodations in the hotel or B&B categories, as documented in the Düsseldorf Hotel Guide and from data collected by Deloitte. Pensions, guest houses and inns have not been included. Those hotels that are not officially recognized by the German Hotel and Restaurant Association DEHOGA were classi-fied according to the establishment’s own records, star ratings on popular booking websites like HRS, Trivago or Expedia and, in some cases, our own rankings.

According to this evaluation, the number of rooms across all categories amounted to 13,256 in 2014. Around 73% of all rooms are provided by branded hotels whereas the remaining 27% are provided by inde-pendent hotels. By far, the highest volume of rooms is in the 4-star segment with a total of 7,254 rooms. 1-star hotels are not represented.

According to Deloitte rankings, Accor has the largest market coverage with 12.6% of the total volume of rooms in branded hotels. NH is ranked second (7.8%), followed by Meliá (6.4%) and Marriott (6.2%). The rankings in the middle are closely packed together. Leonardo Hotels together with Nikko take the last places on the winners’ podium of the largest hotel companies in Düsseldorf.

Rooms on offer

* ** *** **** ***** Total

Number of rooms in private hotels

- 223 2,425 891 22 3,561

Number of rooms in branded hotels

- 733 1,023 6,363 1,576 9,695

Total number of rooms - 956 3,448 7,254 1,598 13,256

Sources: Düsseldorf Hotel Guide 2014, Deloitte analysis

Ranking

Hotel companyShare of

branded rooms

Accor 12.6%

NH 7.8%

Meliá 6.4%

Marriott 6.2%

Carlson Rezidor 5.9%

IHG 5.8%

Maritim 5.5%

Lindner 4.3%

Leonardo 4.0%

Nikko 4.0%

Source: Deloitte analysis

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A successful 2014The STR Global benchmark figures for the first half of 2014 show that all performance indicators have devel-oped positively in comparison to the previous year. Budget hotels have shown the best performance with a RevPAR growth of 46.6%.

In contrast to 2013, 2014 was a major year for trade fairs for Düsseldorf. Accordingly, this also had an influ-ence on the performance of the hotel market. In January, a start in the right direction came from boot which had 248,600 visitors and ensured heavily booked hotels.

A notable increase in the net average daily rate in February was due to the EuroShop trade fair, which only takes place every three years. BEAUTY and ProWein are held every year but enjoyed particularly high demand this March. April was rather modest due to the late Easter holidays in many cities but was pushed by wire & Tube, trade fairs which take place every two years. May was a splendid month and enjoyed a new record for overnight stays, which helped to spur on the KPIs in the hotel industry. June was also very respectable due to the 10th annual meeting of the Gesellschaft für Palliativ-medizin as well as ASME Turbo Expo.

Performance

Category Occupancy Average daily rate Revenue per available room

H1 2014 Change YOY H1 2014 Change YOY H1 2014 Change YOY

2–3 star hotels 65.1% +13.3% 88.00 € +29.5% 57.24 € +46.6%

4 star hotels 68.6% +4.9% 104.00 € +25.7% 71.33 € +31.8%

5 star hotels 68.5% +5.7% 156.12 € +21.8% 106.87 € +28.7%

All hotels 67.6% +6.9% 118.37 € +22.4% 80.06 € +30.8%

Source: STR Global

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Hotel projects –Short pipeline

Small but excellentThe growth in capacity will remain manageable in the next few years. It is expected that only the Derag Livinghotel De Medici will open this year. The Andreas Quartier will follow the trend for serviced apartment buildings. IHG is currently planning two hotels in the city in the budget sector, thus regaining its share of the

market following the sale of Holiday Inn City Centre Königsallee to the Fattal Gruppe as part of the Queens Moat deal. Lindner is also to compensate for the loss of the Rhein Residence Hotel after its lease contract expired by constructing a new Asian-style building in the Japanese district. Accor and B&B are also further expanding their market presence in Düsseldorf.

Hotel projects

Project Operator Location No. of rooms

No. of stars Opening

Derag Livinghotel Di Medici Derag Hotel and Living Mühlenstrasse 172 5 Fall/Winter 2014

Holiday Inn Express Düsseldorf City Centre

IHG Am Wehrhahn 164 3 Summer 2015

Andreas Quartier n.d. Mühlenstrasse ca. 100 5 Summer 2015

Mercure Hotel Accor City center 72 4 2015/16

B&B Hotel Düsseldorf City B&B Toulouser Allee 99 2 2015/2016

Lindner Hotel Lindner Immermannstrasse 177 4 Spring 2016

Holiday Inn Düsseldorf City Arcadia Toulouser Allee 213 3 Winter 2016

Source: Deloitte analysis

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It is not only Düsseldorf that is breaking records but also the German hotel transaction market. The Rhine metropolis has helped contribute to this success and ranks among the top locations for hotels. Selected transactions include the above mentioned Holiday Inn Express that was acquired by Dereco for a Dutch Family Office for around 18 million EUR. Another Holiday Inn Express, namely Düsseldorf City North, has been pur-chased by Apollo Global Management as part of a port-folio transaction.

In our next issue, we turn our attention to another important hotel market in North Rhine-Westphalia. Look forward to discovering what’s been happening in Cologne!

WP/StB Michael MüllerPartnerTel: +49 (0)89 29036 8428mmueller@deloitte.de

Kay Constanze StroblManagerTel: +49 (0)89 29036 8258kstrobl@deloitte.de

Real Estate & Hospitality –Your partners at Deloitte

AuthorsYvonne BrabantSenior ConsultantTel: +49 (0)89 29036 8557yvbrabant@deloitte.de

Carolin SchwendnerTel: +49 (0)89 29036 7649cschwendner@deloitte.de

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Issued 09/2014