Germany, once a powerhouse of efficiency and innovation, now finds itself entangled in red tape, political uncertainty, and economic stagnation—raising urgent questions about the country’s future and its ability to adapt. This growing uncertainty has led to frustration, fears, and contradictions that are having a paralysing effect on the country. These challenges extend to various sectors, including the hotel industry, which is struggling with high energy costs, a shortage of skilled labor, and a reluctance to invest. Investors are wondering whether radical reforms, faster decision-making, or simply fresh ideas can revitalise the market. Yet, despite these challenges, the market still holds significant growth potential for those willing to innovate and adapt.
No, Germany is certainly not a beacon of optimism at the moment. Complaining, worrying, and lamenting - only few nations do it as well as we Germans. That much is well known. But this pessimism isn’t without reason for now. The last few months have been marked by rapid and unsettling developments, both politically and economically. Within weeks, a series of dramatic events unfolded:
- At the end of November 2024, the outgoing chancellor Olaf Scholz dismissed his finance minister.
- Soon after, the coalition government collapses, triggering snap elections.
- Terrorist attacks in Aschaffenburg, Magdeburg, Mannheim, and Munich shake the nation.
- As frustration with the political establishment grows, the far-right AfD capitalizes on voter discontent, making significant gains in an overheated election campaign.
Amidst this political turbulence, Germany’s economic outlook continues to dim. Coalition talks begin between the CDU/CSU and the SPD, leading to a loosening of the debt brake and the approval of a multi-billion-euro special fund.
In addition to virtually unlimited defense spending, €500 billion is earmarked for infrastructure investment over the next twelve years. Yet, current analyses by Strategy&, a subsidiary of PwC, suggest that this will not be enough. According to their calculations, the total financial need at the federal, state, and municipal levels will amount to €982.1 billion by 2035.
Meanwhile, the economy continues to lose momentum. The Munich-based ifo Institute has downgraded its economic growth expectations for this year. Researchers now predict just 0.2 per cent growth in 2025, down from an already weak 0.4 per cent forecast. For 2026, growth is expected to reach only 0.8 per cent—a sobering outlook for a country already struggling with stagnation.
Is Everything Gloomy?
Some concerns we have about the future — such as the climate crisis, social division, and escalating geopolitical conflicts — are certainly justified. Yet amidst these challenges, there are also encouraging developments in the country that deserve attention. More people are employed in Germany than ever before, and the country has recorded its highest real wage increase in years. According to the Federal Statistical Office, wages rose by an average of 3.1 per cent year-on-year. Many companies are also reporting strong profits and continuing to hire. However, these positive signs do not mean Germany’s economic concerns are over. Growth remains sluggish, warns Dr. Sabine Mauderer, vice president of the Deutsche Bundesbank. She cautions that the problem must not be downplayed or glossed over — it is not a temporary phenomenon. Germany has structural weaknesses that must now be addressed if the country is to return to a sustainable growth path.
How Can Germany Get Back on Track?
A key part of Germany’s economic recovery lies not only in the often-mentioned car industry, but also in real estate and hospitality. With over 810,000 companies and around 3.5 million employees, the real estate sector is one of the country’s largest economic drivers. More than 26 per cent of all businesses and approximately 10 per cent of the workforce operate in this field. In 2023, the industry contributed around 20 per cent to Germany’s gross value added - equivalent to €730 billion - coming close to the manufacturing sector, which generated €780 billion. Meanwhile, Germany’s tourism sector reached new heights in 2024, recording 496.1 million overnight stays - a 1.9 per cent increase from 2023 and even 0.1 per cent above the pre-pandemic record set in 2019. Despite this strong performance, both sectors face mounting obstacles that threaten their future stability. Skyrocketing costs, legal disputes, prolonged construction delays, and a difficult financing landscape are causing concern among industry players.
"The business situation in the real estate sector is currently tough for many, but hopes for a turnaround are growing," says ZIA President Iris Schöberl. ZIA stands for Zentraler Immobilien Ausschuss (Central Real Estate Committee), which is one of the most important associations representing the real estate industry in Germany, including developers, investors, and property managers. Political signals must now come swiftly and decisively, as rising interest rates are weighing heavily on sentiment. She proposes a concrete solution: a significant reduction in excessive bureaucracy and regulation. Experts agree that investment alone won’t be enough. Reiner Holznagel, President of the German Taxpayers’ Association, calls for faster approval procedures and clearer responsibilities, while economist Veronika Grimm warns that Germany’s bureaucratic hurdles continue to slow progress. Even with additional debt-financed funds, long planning and approval processes remain a bottleneck for effective implementation. A late 2024 study by the Munich-based ifo Institute found that half of all companies see complex administrative procedures, documentation requirements, statistical reporting, and data protection regulations as the biggest obstacles to economic growth. The institute estimates that excessive bureaucracy is costing the economy up to €146 billion in lost output every year.
What Should the New Government Prioritise?
Given these barriers, the pressing question is: how can the new government remove these roadblocks and reignite economic momentum? Industry experts are clear on what must change. According to the latest ZIA sentiment index, 70 per cent of respondents believe that simplifying regulations, building codes, and technical requirements should be the top priority. Another 40 per cent emphasize the urgent need to digitize government agencies to cut red tape and streamline processes. When it comes to land development, two-thirds (66 per cent) support the accelerated designation of building land in high-growth regions, while 52 per cent highlight the importance of interest-subsidized loans to facilitate investments. However, regulatory reform alone won’t be enough. Rising interest rates present another major hurdle, warns Schöberl. The federal government’s new debt, taken on for national defense and infrastructure, could further drive up borrowing costs—putting additional pressure on investment decisions. Recent market uncertainty has already had tangible effects: yields on ten-year government bonds have risen by 40 basis points, pushing up mortgage rates and making financing even more expensive for businesses and homeowners alike. To counter this, the government could provide equity-replacing funds, guarantees, and loan default protections through the KfW development bank to jump-start stalled projects. According to Felix Pakleppa, Managing Director of the Central Association of the German Construction Industry, the sector is ready and capable: "We are ready to go. The construction industry has the capacity to take on new projects and the expertise to implement the necessary infrastructure developments." Yet, despite this readiness, 40 per cent of construction companies report a shortage of orders at the moment. Fast action by politics is therefore required.
A Shift in Thinking Is Needed
The real estate investment landscape is undergoing a fundamental shift too. Traditionally, investors prioritized the property itself before considering the businesses operating within it. Now, this dynamic is reversing—particularly in the hospitality sector, where investors are increasingly focusing on operational performance. And this shift appears to be paying off. "In 2024, we observed a significant increase in activity in the hotel investment market, even if this was not reflected in transaction volume," says Helena Rickmers, Head of Hotel Investment at CBRE Germany. The reason: while 2023’s transaction volume was driven by two major deals in Q4, 2024 saw a broader investment base. Although no extremely high-value deals or portfolio allocations were made, eight transactions exceeded the €50 million mark. The underlying market dynamics have also improved. Structured sales processes, competitive bidding, and predictable transaction timelines have returned—provided the asset meets investor expectations. Another encouraging sign: purchase prices are increasingly aligning with sellers' expectations, a stark contrast to 2023.
Where Is the Capital for Hotel Investments Coming From?
With market conditions stabilizing, the key question now is: who is driving hotel investments in Germany? "The market is still dominated by a few active investors. Price discovery in the value-add and opportunistic segments, on the other hand, is more challenging”, says Michael R. Baumann, Head of Capital Markets Germany at Colliers. Transactions and business plans are being examined more thoroughly and for longer periods, regardless of the investment strategy, as the conservative LCR expectations of investors contrast with a rapidly growing operator market and, in some cases, declining EBITDA margins. Family offices and hotel operators have taken a leading role in the German hotel investment market, filling the gap left by retreating institutional investors. Hotel groups acquiring properties as operators were more active than in previous years—examples include Roomers Munich and Le Méridien Stuttgart, two major single-asset transactions in 2024. This trend reflects a strategic shift: operators are seeking greater control over their assets to mitigate rental risks and secure long-term profitability. Value-add strategies, which focus on active asset management, repositioning, and operational improvements, remain in high demand, explains Alexander Apitzsch, Consultant for Advisory & Valuation Services at Christie & Co. "In the investment sector, hotel investors are increasingly shifting their focus towards brands and companies. A key example is IHG Group’s acquisition of Ruby Hotels, which allows them to expand the brand through a franchise model," explains Ulrike Schüler, Managing Director and Head of Germany at PKF hospitality group. "Hyatt also acquired the ‘me and all Hotels’ brand from the Lindner Group, while the Berlin-based HR Group recently took over H-Hotels, one of Germany’s largest privately managed hotel chains." Strategic partnerships are also shaping the market, Schüler adds. “A prime example is IHG Group’s collaboration with NOVUM Hospitality, which doubled IHG’s presence in Germany. Another notable development is the financial investor PAI’s 80 per cent stake in Motel One, reflecting continued investor confidence in Germany’s budget and lifestyle hotel sector.”
A Monetary Policy Boost for the Market
"There is currently a strong monetary policy stimulus," says Dr. Jan Linsin, Head of Research at CBRE Germany. While interest rates are becoming more attractive for real estate investors, most have already adjusted to a "higher for longer" environment. "Conservative plans are now meeting more favorable conditions, which provides a solid foundation for the real estate investment market," he adds. As of 2024, prime yields for hotel investments remained stable at 5.25 per cent. For context, at the end of 2024: 10-year German government bonds yielded 2.43 per cent (up 0.24 percentage points from the start of the year). The 5-year euro swap rate stood at 2.2 per cent (down 0.21 percentage points), and the 10-year euro swap rate was 2.32 per cent (down 0.15 percentage points).
Martin Schaffer, Managing Partner at MRP Hotels, observes that the German hotel real estate sector is regaining momentum, presenting increasingly promising investment opportunities. However, domestic buyers remain somewhat cautious, while international investors—especially opportunistic ones—are focusing more on the German market. "Core transactions will return only gradually, and operator profitability remains a challenge," Schaffer notes. One notable trend is that operator-free transactions are proving easier to execute than investments involving financially weaker tenants. The real estate market’s shifting dynamics and uncertain interest rate developments require flexibility. “Those who invest strategically now can benefit from attractive opportunities,” Schaffer explains.
But the market has changed. “There is no longer a wide range of options. In recent years, the operator market in Germany and Europe has undergone significant consolidation: Some brands have been fully or partially integrated into larger, international operator structures. For investors, it is becoming increasingly difficult to find financially strong and independent hotel operators with local market knowledge and operational excellence,” says Theodor Kubak, Managing Director of Arbireo Hospitality. “This trend towards consolidation continues unabated—largely because capital requirements, digitalization, and ESG (Environmental, Social, and Governance) demands are putting pressure on smaller players. At the same time, new opportunities are emerging: Those who develop flexible, well-capitalized operator concepts today—such as a white-label platform or franchise model—can specifically fill this gap and build a structural competitive advantage,” Kuback adds.
Hotel Development Pipeline and Sustainability Considerations
Another key factor for hotel investors is the supply pipeline: The number of new hotel developments in Germany is slowing down. Between 2015 and 2023, the number of new hotels grew by 2.4 percent annually. However, from 2023 to 2025, this growth is expected to slow significantly to just 0.2 percent per year. The importance of sustainability is also growing, as highlighted by Susanne Eickermann-Riepe, Chair of the RICS European World Regional Board. “Despite a challenging time in many respects, the German hotel industry is demonstrating its resilience. I see a strong willingness to invest, especially in urban areas. However, given the increasing frequency of heatwaves, more attention must be given to shading and cooling buildings when planning new projects and renovating existing properties.”
Overall Outlook for 2025: Not too bad
Overall, 2025 is shaping up to be a positive year, with a recovery expected in the German hotel investment market. “Several major deals are already in advanced stages and will likely contribute to further market revitalization. At the same time, we are seeing a high volume of acquisition valuation requests, suggesting that 2025 will be a year with more transactions,” predicts Rickmers. “We may also see a slight compression in prime yields.”
The Key words are: Let’s start together, now!
Let’s focus on the good news: The long-term growth trend in tourism—and, by extension, the hotel sector—is expected to continue in Germany. The outlook is promising: While intra-European tourism grew at an average rate of 4.3 percent per year in the decade before the COVID-19 pandemic, experts now predict an increase to 6.3 percent annually by 2029. However, instead of merely hoping for better times, what is needed now is courage, effort, and responsibility from all stakeholders. Germany will only overcome its economic and social stagnation if politics, business, and investors actively embrace innovative solutions together. A rational, data-driven perspective is crucial—but soft factors should not be overlooked. Politicians need to understand the real needs of their citizens, investors must recognize what hoteliers require to enhance their performance, and hoteliers, in turn, must grasp what guests are really looking for.
New economic and social realities, as well as technological advancements, are challenging traditional methods. Sustainability criteria—whether environmental, social, or governance-related—are gaining importance. And what role will artificial intelligence play? Will it be a game-changer or just another buzzword? One thing is certain: Consumer trends are shifting. Hotel guests, whether tourists or business travelers, are increasingly seeking experiences rather than mere functionality. To succeed in this transformation, the industry must embrace innovation and develop new concepts. Perhaps we could draw inspiration from other cultures. In Italy and Spain, loud complaints are part of the process—and then people move forward. In Germany, we often see complaints as a sign of powerlessness. But perhaps it could be a catalyst for collectively tackling challenges. Instead of merely discussing problems, we should look ahead—and see, that the glass is not half empty, but half full.