Credit: The Ruby GroupGermany’s hospitality market debates the sweet spot for smart money
Hotel brand scaling, hybrid lease models, and the search for year-round resort returns reshape Germany's hospitality landscape
November 7, 2025Real Estate
Written by:Helen Richards
Key Takeaways
- Stakeholders are increasingly favouring management contracts over fixed leases in the German hospitality market due to participation in Profit and Loss (P&L) data transparency.
- The expansion of boutique brands are proving they can evolve into reliable investment platforms, however risks involve dilution of unique brand DNA.
- Leisure destinations and resorts, particularly those that operate year-round, are viewed as a lucrative "sweet spot for smart capital".
The German hospitality scene is crackling with change, transitioning from a market dominated by fixed leases to one embracing management contracts and hybrid models, as well as a surging branded hotel landscape.
At GRI Institute’s recent Deutschland Hospitality roundtable, senior real estate professionals engaged in a candid debate over the future of hotel contracts, the risks of brand dilution following mega-acquisitions, and the new investment appeal of global resort destinations that offer 365 days of operation.
This trend is demonstrated by brands like Motel One and Ruby, whose growth in Germany has validated the model of converting individual hotel success into a platform attractive to international capital. The sale of the Ruby hotel brand to a private equity firm earlier this year, for instance, confirms this strong market interest in acquiring such scalable platforms.
From a financial perspective, these acquisitions are welcomed, helping to prove that unique, boutique brands can evolve into reliable investment platforms. For large acquirers, massive growth plans are expected to boost brand recognition and, most importantly, top-line revenue.
However, this rush to scale raises concerns about brand individuality and DNA. Some operators fear that the global roll-out, while necessary for aggressive growth, may demand the sacrifice of the uniqueness that made the brand successful.
Furthermore, integrating new brands presents significant operational challenges for large corporations. The acquiring company may not fully grasp the brand's essence, leading to a loss of "brand DNA", particularly if the internal transition period is too protracted.
Another viewpoint suggests these large-scale acquisitions are less about the brand itself and more about circumventing internal constraints. Established giants such as IHG and Marriott often struggle to meet their ambitious growth targets using traditional fixed lease agreements.
These companies buy new brands primarily to acquire existing contracts and achieve faster unit expansion with reduced capital expenditure (CapEx). In this context, the essential benefit for the end customer, especially the frequent business traveller, is often the loyalty programme, making the specific hotel brand a secondary concern.
Financiers often focus exclusively on the hotel's operational viability and its ability to cover capital service, demanding full Profit & Loss (P&L) transparency from top to bottom.
The lack of this transparency is a core problem with fixed leases, as there is a profound difficulty in obtaining full operational figures from the lessee, while management contracts make it far simpler to secure this complete P&L data.
The hospitality market is heavily focused on the conversion of existing properties, particularly office buildings with high vacancy, into hotels, residential, or long-stay products. (Credit: Freepik)
The hospitality market is heavily focused on the conversion of existing properties, particularly office buildings with high vacancy, into hotels, residential, or long-stay products. However, the economic viability of these conversions often proves challenging.
Not only is new greenfield construction often cheaper, faster, and less complicated from a permitting standpoint, many commercial spaces are often not in locations suitable for hotel use. Furthermore, conversion only works when the layout is favourable and when the cost for technical upgrades and renovation is not excessively high.
These year-round destinations are also favourites among financiers, not only for their 365-day operational capacity but also for promising higher returns.
Despite this strong interest, the efficiency of capital markets is shifting the investment landscape; the days of cheap capital in these attractive resort havens are waning, suggesting a potential normalisation after the peak of the resort investment boom.
These insights were shared during GRI Institute’s Deutschland Hospitality roundtable, with participation from Alexander Müller (Activum SG UK Advisors Limited), Anastasia Osipov (Motel One Group), Florian Kern (Aareal Bank), Josef Maximilian Vollmayr (Limehome), Olaf Steinhage (Holler Hospitality), and Sebastian Koch (Covivio).
At GRI Institute’s recent Deutschland Hospitality roundtable, senior real estate professionals engaged in a candid debate over the future of hotel contracts, the risks of brand dilution following mega-acquisitions, and the new investment appeal of global resort destinations that offer 365 days of operation.
The Brand Expansion Conundrum
The German hospitality market is currently experiencing a "second wave" of brand scaling, building on the prior success of deals where boutique concepts proved their viability as investment platforms.This trend is demonstrated by brands like Motel One and Ruby, whose growth in Germany has validated the model of converting individual hotel success into a platform attractive to international capital. The sale of the Ruby hotel brand to a private equity firm earlier this year, for instance, confirms this strong market interest in acquiring such scalable platforms.
From a financial perspective, these acquisitions are welcomed, helping to prove that unique, boutique brands can evolve into reliable investment platforms. For large acquirers, massive growth plans are expected to boost brand recognition and, most importantly, top-line revenue.
However, this rush to scale raises concerns about brand individuality and DNA. Some operators fear that the global roll-out, while necessary for aggressive growth, may demand the sacrifice of the uniqueness that made the brand successful.
Furthermore, integrating new brands presents significant operational challenges for large corporations. The acquiring company may not fully grasp the brand's essence, leading to a loss of "brand DNA", particularly if the internal transition period is too protracted.
Another viewpoint suggests these large-scale acquisitions are less about the brand itself and more about circumventing internal constraints. Established giants such as IHG and Marriott often struggle to meet their ambitious growth targets using traditional fixed lease agreements.
These companies buy new brands primarily to acquire existing contracts and achieve faster unit expansion with reduced capital expenditure (CapEx). In this context, the essential benefit for the end customer, especially the frequent business traveller, is often the loyalty programme, making the specific hotel brand a secondary concern.
The Fixed Lease vs. Management Contract Debate
The industry continues to debate the optimal contractual model, particularly in the context of financing and risk.Fixed Leases
Historically, fixed leases were the standard in Germany. For developers, a fixed lease offers planning certainty and simplifies financing and eventual sale. Some large operators are known to exclusively use fixed lease agreements in Germany, preferring the efficiency of this model, which also offers a more predictable return per room than management contracts.Management Contracts & Hybrids
Over the last decade, the German market has shifted towards hybrid models (revenue-dependent with a minimum lease) and management contracts. The primary advantage cited for these is the ability for the owner/partner to participate more fully in potential profits.The Financier's Stance
Many financiers express a strong preference for management contracts, considering fixed lease agreements to be unsustainable for financing, arguing that the security of a tenant or a 12-month lease guarantee is too thin.Financiers often focus exclusively on the hotel's operational viability and its ability to cover capital service, demanding full Profit & Loss (P&L) transparency from top to bottom.
The lack of this transparency is a core problem with fixed leases, as there is a profound difficulty in obtaining full operational figures from the lessee, while management contracts make it far simpler to secure this complete P&L data.
The hospitality market is heavily focused on the conversion of existing properties, particularly office buildings with high vacancy, into hotels, residential, or long-stay products. (Credit: Freepik)Development and Conversion Challenges
The dilemma of high construction costs, elevated interest rates, and the need for new projects has brought the topic of conversion to the forefront.The hospitality market is heavily focused on the conversion of existing properties, particularly office buildings with high vacancy, into hotels, residential, or long-stay products. However, the economic viability of these conversions often proves challenging.
Not only is new greenfield construction often cheaper, faster, and less complicated from a permitting standpoint, many commercial spaces are often not in locations suitable for hotel use. Furthermore, conversion only works when the layout is favourable and when the cost for technical upgrades and renovation is not excessively high.
The Resort and Leisure Boom
Germany and Austria's hospitality market is seeing leisure destinations, particularly resorts, emerge as a "new sweet spot for smart capital". However, operational challenges, such as the difficulty of managing seasonal business in Germany, coupled with construction costs that can be more than double those in other countries, are pushing many operators to focus their expansion on markets that can sustain business year-round, such as the Canary Islands and the Caribbean.These year-round destinations are also favourites among financiers, not only for their 365-day operational capacity but also for promising higher returns.
Despite this strong interest, the efficiency of capital markets is shifting the investment landscape; the days of cheap capital in these attractive resort havens are waning, suggesting a potential normalisation after the peak of the resort investment boom.
These insights were shared during GRI Institute’s Deutschland Hospitality roundtable, with participation from Alexander Müller (Activum SG UK Advisors Limited), Anastasia Osipov (Motel One Group), Florian Kern (Aareal Bank), Josef Maximilian Vollmayr (Limehome), Olaf Steinhage (Holler Hospitality), and Sebastian Koch (Covivio).