Jan. 27 (Bloomberg) -- Hotel Mani, a new 63-room boutique hotel on Berlin’s Rosenthaler Platz, is bustling with suitcase-pulling travelers arriving for Fashion Week. It’s the second hotel Ariel Schiff has built in the trendy Mitte district, and four more are in the pipeline.
“We’re being offered new sites every week,” Schiff, a 46-year-old entrepreneur who was born in the city, said in an interview last week in the hotel lobby. “There are no free spots in Paris, London or Rome.”
Schiff’s first hotel in the city, the 163-room Amano, is a block away from the Mani and has a rooftop terrace and a bar popular with the hipster crowd. His company plans to start work on at least two more this year.
Investors such as Schiff are riding a wave of tourism, fueled by low-cost airlines and events including Fashion Week. The city has overtaken Rome as the third most-popular destination in Europe, after London and Paris. As the pace of hotel construction accelerates, some operators have been forced to cut room rates to compete in what is already one of the country’s cheapest hotel markets.
“While many other places are facing slumps, tourism in Berlin is still thriving,” said Kerstin Jaeger, a spokeswoman for the German Hotels and Restaurants Association, a lobby group known as Dehoga. “The city has a healthy mix of business and private travel that’s backed up by a large share of politically related traveling, which is hardly affected by economic weaknesses.”
The heads of state and other politicians who visit the German capital often favor luxury properties such as the Hotel Adlon Kempinski, which is opposite the Brandenburg Gate, and Marriott International Inc.’s Ritz-Carlton on Potsdamer Platz.
Hilton Worldwide plans to open its first Waldorf Astoria hotel in Germany this year near Kurfuerstendamm, West Berlin’s best-known shopping street. The McLean, Virginia-based company, owned by Blackstone Group LP, said the 232-room hotel will probably open in May. Swan Operations of Abu Dhabi invested about 220 million euros ($289 million) in the project.
“Berlin is Germany’s only international metropolis and it’s in constant transformation,” Friedrich Niemann, the hotel’s general manager, said by telephone. “While the city can’t support the kind of room rates that you see in London or Paris at the moment, prices are moving in the right direction.”
The Waldorf Astoria is taking bookings from Sept. 1, with prices ranging from 350 euros a night to about 4,385 euros for the King Ambassador Suite.
“We are looking for more opportunities in the city,” said Patrick Fitzgibbon, senior vice president for development in Europe and Africa at Hilton. “Demand has been steadily increasing and rooms rates will catch up.”
The company has 110 European hotels in the pipeline and aims to expand its Hilton Garden Inn, Doubletree and Hamptons brands in Germany’s largest city, Fitzgibbon said. U.K.-based InterContinental Hotels Group Plc plans to open four hotels there this year: a Holiday Inn on Alexanderplatz, a Crowne Plaza on Potsdamer Platz and two Indigo boutique hotels.
The number of hotel rooms in Berlin rose 4.7 percent last year, the biggest increase since at least 2006, STR Global data show. The city of about 3.5 million people had 604 hotels in November, more than New York’s 547, according to the research company. The U.S. city’s room count is larger than Berlin’s because the average hotel size is bigger.
Projects that are planned or already under way will increase Berlin’s room count by 6.8 percent, STR estimates.
The market is evenly shared by small, independent operators such as Schiff and larger brands owned by companies including Hilton. Other chains include Phoenix-based Best Western International Inc., which has 12 Berlin hotels, and Wyndham Worldwide Corp., a Parsippany, New Jersey-based company that runs five properties in the city, according to their websites.
Most of the new hotels are smaller and cheaper than the Waldorf Astoria. Indeed, the construction boom that added 2,662 rooms in the 12 months through November contributed to a 2.1 percent drop in the average daily rate from January through November, to 86.10 euros, according to STR. That’s the second-lowest among 14 major global markets and compares with an average rate of 100.25 euros for all of Europe.
“There is now massive competition,” said Thomas Lengfelder, Dehoga’s chief operating officer. “The market may already be saturated.”
Berlin’s hotel occupancy rate was 70 percent at the end of last year, STR Global said. That’s more than the European average of 66 percent, though less than London’s 82 percent and Paris’s 79 percent.
Hotel Mani opened on Jan. 2, increasing the number of hotels on or close to Rosenthaler Platz to five. They also include Berlin’s first EasyHotel, an affiliate of low-cost airline EasyJet Plc, which offers rooms for as little as 25 euros a night, according to its website.
Rosa-Luxemburg-Platz, another square in the Mitte district, and the area around Berlin’s six-year-old main railway station have also become hotel hubs.
Unlike other major cities, Berlin still has pockets of land left over from World War II fire-bombing raids that, according to the local government’s website, destroyed 600,000 apartments. The Cold War, meanwhile, was responsible for the Berlin Wall. The former “death strip” between the eastern and western borders is now prime real estate in the city’s center.
Berlin’s turbulent past has become part of its appeal as tourist destination, along with the city’s reputation as a magnet for creative industries such as software makers, fashion, publishing and the arts.
“There’s more of an experimental edge to Berlin than you will find in any other German city,” said Mark Wynne-Smith, head of Jones Lang LaSalle’s hotel unit. “That’s drawing visitors.”
Mayor Klaus Wowereit, who coined the oft-cited description of Berlin as “poor but sexy,” said in November that he wants the city to “get richer and stay sexy.”
Berlin’s new international airport may help Wowereit achieve his goal. Berlin Brandenburg Airport is due to open in June and, according to Lengfelder, will help boost the number of overnight stays in the city to 30 million by 2017 from 22 million last year. That’s after the figure doubled in a decade.
“We have high hopes that the new airport will bring in even more people,” particularly from Asia and North America, Lengfelder said. “We need them if we want to keep the hotels occupied.”
The falling room rates make this a matter of survival for smaller, more price-sensitive hotels. Double rooms at the Mani in February, for example, cost 74 euros to 140 euros, according to the hotel’s booking website.
“The margin pressure exists,” said Schiff, sitting on a gray suede sofa. Above his head hangs a photo of the investor and his team in fancy dress, gathered around a naked model reclining on a dinner table.
“In Berlin, hotels can only be profitable with high occupancy rates,” he said. “That’s still possible if the concept’s right.”