(Bloomberg) Lounging in the sunlit lobby of the Grand Hyatt Berlin, Olaf Wolters says he’s lost count of the number of luxury hotels he’s stayed at in the German capital.
“You have a lot of art hotels, a lot of options where you can stay,” says Wolters, a media lawyer who visits the city every year for the Berlin Film Festival. “It’s very cheap.”
Berlin’s 41 four-and-five-star hotels, including the Adlon at the Brandenburg Gate and the Ritz-Carlton on Potsdamer Platz, have about 12500 rooms, according to Chicago-based Jones Lang LaSalle. By next year, three more such hotels will add another 677 rooms, bringing pressure on operators to cut prices that are already less than half the rate in London.
Average prices for four-star and five-star rooms in Berlin, whose economy has shrunk in seven of the past 10 years, fell 5,1% last year to €126, according to Jones Lang, a commercial real estate brokerage.
A similar room in London, which has 190 luxury hotels, costs €259. The price in Berlin is 40% less than a room in a Paris luxury hotel.
The inability of Berlin hotels to command higher prices underscores the city’s failure to regain its one-time position as one of Europe’s grand capitals. The collapse of the Berlin Wall in 1989 brought a flood of investment on expectations that the newly minted “Berlin Republic” would take its place at the centre of an expanding Europe. The explosive growth never came.
“It’s a real problem,” says Hans Eilers, manager of the Savoy Hotel in western Berlin.
Berlin is set to get more five-star hotels next year.
“Given the future outlook over the next three to five years, any five-star development carries a lot of risks,” says Christoph Haerle, a Jones Lang analyst. “There are other projects planned and rumoured.”
Berlin’s primary issue is the nature of Germany’s $2,7-trillion economy, with industrial bases spread out in Frankfurt, Munich, Hamburg and the Ruhr Valley, says Tobias Just, a Deutsche Bank property analyst. No major German firm moved its headquarters to Germany’s once-divided largest city.
“In London and Paris you have the corporate centres, but in Germany the economy is spread out, so there is no upswing in business clients,” says Just.
The absence of a major airport and direct flights to overseas destinations from Berlin poses one of the biggest obstacles to business travellers, according to analysts.
Berlin mayor Klaus Wowereit says the city plans to introduce flights to Asia. Delta Air Lines and Continental Airlines resumed flights to New York after a four-year gap.
Berlin’s smaller hotels are being helped by business from tourists, with visitors descending on the city for remaining chunks of the Berlin Wall and snapping photos in front of Checkpoint Charlie. The number of overnight stays in the city rose 16% last year to 13,3-million, city statistics show.
The growth has been driven partly by offerings from low-cost carriers such as EasyJet, with one-way fares as low as €21,49 for visitors from Madrid.
The tourism boom hasn’t helped the luxury accommodation segment because it hasn’t brought enough high-end clients, according to Haerle. “Either the people weren’t prepared to pay half-decent rates, or there has been so much new supply the increase has been sucked up.”