The symbolic fracture of a world split in two has been almost fully reabsorbed. Twenty years after the Wall fell and ten since the government was transferred, Berlin has regained its role on the world’s stage. Tourists are thronging, seduced by the capital metamorphosis of this city of art and history. Nonetheless, despite the constant growth in arrivals, results in its hotel industry continue to lag behind European metropolises due to chronic overcapacity. But the forthcoming opening of the new airport BBI offers new perspectives. Is Berlin ready for takeoff?
Last November 9 the entire world and Berliners gathered at the foot of the Brandenburg Gate to celebrate together the twentieth anniversary of the Wall. This record affluence fully satisfied hoteliers in the German capital. The Heads of state in attendance, more than 2,800 journalists and many tourists who were happy to share this joyous moment filled the city’s properties. Thanks to this event, ORs for the month of November were up by 2.4 points to 71.3%, according to the observatory MKG Hospitality. Thanks to this affluence, hoteliers were able to practice high prices with an average daily rate of 81.4 euros, up slightly over 2008 (+0.3%), supporting growth in the RevPAR by 3.8% versus a drop by nearly 10% across the entire year.As in all Europe’s major cities, the German capital’s hotel industry had a difficult year. Across 2009, Berlin experienced a controlled drop in occupancy (-1.3 pt), but a significantly greater drop in the average daily rate (-7.4 %). Bernhard Dohne, regional director of the group Maritim in north Germany, was able to observe a significant drop on the MICE segment: “clients negotiated prices for services while events reserved in advance hosted fewer delegates than planned.” MICE tourism is a strategic segment for city hotels, half of which have meeting spaces, but corporate cost reduction policies have brought its growth to a brutal halt. This segment had reached 2% in 2008 (104,600 events and 8.15 million participants) for 4.7 million nights generated (+5%).The German group, which has two high capacity hotels in the city with more than 400 rooms, had to find ways to compensate for these absences by addressing leisure clientele. Fortunately, Berlin’s power of seduction came to the fore and largely offset the effects of the crisis. Better still, the German capital is unique in a tourism universe in full recession and was one of the rare cities worldwide to have posted growth in tourist arrivals. The metamorphosis of the German capital attracts increasing numbers of European visitors. Its effervescence stimulates the arrival of trendy, young clientele. It’s cultural wealth – they say Berlin has more museums (180) than rainy days – has growing appeal. “Travelers the world over love the new Berlin. Which is confirmed by the strong growth in number of visitors, even at the worst times during this global economic crisis,” rejoices Burkhard Kieker, CEO of Berlin Tourismus Marketing.In 2008, growth reached 4.2% for 7.9 million visitors and 17.8 million nights (+ 2.8%). It continued in 2009 when, from January to October, the city recorded 3.6% more visitors and 5.1% more nights. While British clientele, first after domestic clientele, were strongly impacted in the last two years such that they were surpassed by Italians in 2009, Dutch, French and Scandinavians also answered at roll-call. Additional proof of this appeal: visitors from America and Spain, two countries nonetheless greatly affected by the crisis, were also present in higher numbers.Short of a catastrophe – definitive results will only be published in a few weeks – the city will have surpassed 18 million nights at the end of 2009. In addition to the anniversary of the fall of the Wall, other major events have played a role in these good results.The month of August, traditionally weak, benefited from the World Championships in Athletics it hosted, when hotel occupancy peeked at 80%. Just a month earlier, between July 9 and 12, the Olympic stadium hosted a very different – but equally attended – event with the International Convention of Jehovah’s Witnesses. “These two events had a positive impact but these clientele are less profitable than the MICE segment,” remarks Bernhard Dohne.Strong tourism and a drop in hotel results: it might appear paradoxical to observers not familiar with Berlin’s hotel industry, nut results merely bear witness to a persistent problem. Overcapacity has long penalized hotel performance which continues to lag far behind London and Paris which Berlin is approachingin terms of tourist arrivals. Now that it is back on the world’s stage, the German capital has logically caught the attention of investors, developers and hotel groups since the 90s. But the latter may have been a bit hasty. “Overcapacity is constant and growing. Berlin just celebrated the opening of its 55,000th room in 2009,” remarks Peter Verhoeven, general manager of Accor Hospitality Germany.Unfortunately, Berlin’s market does not have the same structures as its competitors. While the German market has fully recovered its political position that was rightfully its own, its economic power still leaves a bit to be desired. Germany’s major corporations have not kept up with the transfer of the federal government and their headquarters have remained faithful to their original locations in Frankfurt, Munich, Düsseldorf, Stuttgart, Hamburg, Hanover and Cologne. In terms of events organization, Berlin also suffers from the weight of its regional bastions. “On the MICE segment, Paris and London has no competition from other cities for hosting major conventions with exception to Birmingham and the French Riviera. Berlin, meanwhile has at least six national competitors,” underlines Bernhard Dohne.Add poor airline connections in comparison with Frankfurt’s hub and you have all the ingredients for fierce competition. This shortcoming may be felt on the upscale segment, which, by ricochet, affects all segments. Revenue managers must be skilled acrobats when it comes to defining optimal rate strategiesand preserving the competitive advantage of its properties. This is crucial at IHG (10 hotels) and Accor (31 hotels), which has built the full array of its brands in Berlin. “We are trying to maintain stable price positioning in order to protect the position of our different brands on the market,” explains Peter Verhoeven.The German director of the French group offers the key to Berlin’s market: “Location is becoming a vital element in the equation”. And it should be all the more so in the future. Because the race for good sites is not over, far from it. The 60,000-room benchmark is in sight. Real estate remains attractive – still well below the level of the major European and some large German cities. “Despite the current situation, Berlin’s hotel market continues to present opportunities in some places,” concedes Peter Verhoeven. The area in the proximity of Alexander Platz and Potsdamer Platz to the East and the area around the famous KuDamm and the department store KaDeWe to the West are the most sought after.While location is strategic, so is positioning. 2009 offered an opportunity to further increase the great diversity of Berlin’s hotel supply. One by one several properties were opened: Casa Camper, a boutique hotel launched by the Spanish shoes and sportswear leader; Axel, a new link in the gay and hetero-friendly chain; the CampusHotel, a hotel by the group Seminaris – a conference resorts specialist – nestled in the center of Freie Universität. Other innovative hotels should appear quickly under the Soho House label, a private hotel-club concept, and certain projects are under study such as a floating hotel-conference center and a sustainable hotel where the client pays more or less depending on energy consumption. Alongside these niche products, hotel groups will be the greatest room suppliers in the city. In 2009, several brands developed their supply such as Vienna International with the Andel’s, a high-capacity design hotel, and the German-Israeli group Leonardo with two inaugurations one after the other with a third scheduled for 2011/2012. Motel One is also multiplying its openings of high-capacity hotels. The Motel One Urania and Berlin Bellevue opened last year and the group is still waiting for the Berlin Spittelmarkt (303 rooms) and Berlin HauptBahnhof alongside the station (514 rooms). These openings will bring the German economy hotel leader’s totalsupply to seven hotels.Also on the Budget segment, the Accor Group will add an All Seasons and an Etap Hotel in 2010. But all the segments are concerned by the developments to come that include, among others, a new Scandic, a Tryp, a Ramada and a NH Hoteles underway. To end on a high note, in 2011, Hilton will open a Waldorf=Astoria, joining the battalion of 5* hotels that already include the Adlon by Kempinski, and Regent, Westin, Grand Hyatt, Concorde, Ritz-Carlton as well as the Hôtel de Rome by Rocco Forte Collection.But patience is the mother of all virtues. For hoteliers that have been present for a long time and for new arrivals alike, brighter skies should lie ahead. “2010 should bring slight improvement and we should return to the level of two years ago at the end of the year. My confidence is greatest with regard to the long-term. In 10 to 15 years, Berlin will be competing with other major cities,” assures Bernard Dohne. It is true that Berlin tourism demonstrated its ability climb stage by stage without losing ground. The capital moved in 1999, and low-cost travel took off in 2004, the FiFA World Cup in 2006: each of these events pushed the previous limits a bit further.A new springboard presents itself with the opening of the Berlin Brandenburg International (BBI). At the end of 2011, the transformation of Schönefeld airport into an ultra-modern terminal able to accommodate 25 million and later 40 million passengers will be complete. It will allow the city to increase the number of direct flights to European destinations as well as long-haul flights that previously had to transit via Frankfurt, constituting one of the great weaknesses for Berlin tourism. Hoteliers are thus looking forward to this new flow of clientele in addition to a decrease in dependency on the national market. This shift is already underway since Germans constituted 60.4% of Berlin’s clientele in 2009 versus 61.7% the previous year and more than 67% in 2003.Thanks to the BBI, local players will have a strategic advantage for facing the many challenges awaiting the city. Easier access to the German capital should make it possible to keep up with growth on the congress segment - “one of the most important economic growth engines in Berlin” according to Burkhard Kieker – and to vie for the organization of new profitable events. But this opening up could convince major groups to install their local headquarters in the city and give a serious boost to Berlin’s economy. Surely the biggest challenge for a city that is known for its relaxed lifestyle.
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