Europe's serviced apartment sector is set for 50% growth in the next two years, as growing demand for the product helps persuade institutional investors into the sector. That's the prediction of agent Savills, which is tracking the serviced apartment market and sees several reasons why this Cinderella of the European hotel market may finally gain traction.
Supply is currently constrained in key European markets, says Savills, with availability markedly below that in other global cities. Amsterdam has 0.2 units per 1,000 overseas visitors, while Paris and London score 0.3 and 0.6 on the same measure. Brussels and Frankfurt are somewhat better off with 1.1 units per thousand visitors, but are on a different scale to New York, with 5.8, and Hong Kong with 2.9.
The numbers are already encouraging expansion. Established sector players Ascott and Frasers are both opening blocks in Frankfurt this year, while StayCity has said it will expand to 5,000 units by 2019 with Venice, Lyon and London in its pipeline. In London, operator Cheval Residences has just opened its seventh unit, which has 159 apartments on a site close to the Tower of London. And UK operator Roomzzz, which has six aparthotels in regional cities, has won permission to convert an office building in Chester, while planning openings in Liverpool and London.
Also recently, Union Hanover has geared up to grow its Urban Villa concept internationally. A substantial private equity investment has allowed the company to sign a senior management team tasked with major expansion; several UK projects are already under way. The company has underlined the importance of ensuring its mini apartments appeal to both the leisure and family market, as well as longer stay business customers.
Part of the growth in demand comes from changing guest expectations and habits. New ways of managing bookings make it easier to tap into shorter term lets, while leisure travellers are becoming a growing influence in the market. "Some of the larger operators are moving away from a reliance on the traditional long stay corporate market and are tapping into shorter stay guests, particularly as businesses' reliance on travel management companies wanes," says Marie Hickey, director of research at Savills. "As a result, developing a branded product that appeals to a variety of guest segments and which raises customer awareness has become all the more important to operators."
One brake on expansion of the sector has been getting investors on board. IHG, which was an early mover in refreshing its successful Staybridge extended stay brand for Europe, had to educate developers initially on how the model differed from hotels. It has had success, working with manager Cycas Hospitality and opening units in London, Liverpool, Newcastle and Birmingham. A Staybridge at the Stratford Olympic park was sold by developer Patron Capital in early 2013, to a Singaporean investor, while in November IHG signed to develop a second Staybridge in London.
"This expansion of branded purpose built stock should strengthen the appeal of the sector to institutional investors and we anticipate a significant increase in capital in the next few years," said James Bradley, associate director at Savills hotels. "However, over the short term, private equity and owner operators will continue to be the primary driver of expansion. When institutional demand does materialise, we expect it to be focused on the major cities in the UK, France, Germany and Benelux."
There remain operational challenges, says the Savills report. Those operators that have long stay corporate guests may offer deals where extensions can be booked at short notice, something that could clash with leisure bookings and real time revenue maximisation systems.
HA Perspective [by Katherine Doggrell]: As the Union Hanover deal earlier this month illustrated, there is room for the reassurance of the brand in any part of the accommodation sector. Indeed, delegates at the International Hotel Investment Forum in Berlin were warned that customers were becoming increasingly loyal to online travel agencies, rather than the hotel brands they were booking them into. And fair enough, the OTAs have paid dearly for that position.
The launch of Staybridge in the UK was initially met with confusion – there are precious few road warriors in comparison with the US, most business travellers have no need of extended stay and can at least make it home at the weekend.
Widening the remit and recognising that there was a market for aparthotels for those planning a shorter stay was the logic behind the Union Hanover deal. Weekends in such products are attractive to the leisure market, with families and groups looking for flexibility and conviviality – as the success of Airbnb and Housetrip is testament to.
Outside overcoming planning restraints, the creation of a successful brand which the customer will follow will be key to success. Unlike conventional hotels, location is less critical to this sector, however, as the budget sector has found, prominent locations build brands and the aparthotel operators will find themselves in expensive competition with hotels for sites. This study suggests that they may be able to make a convincing argument to developers