The serviced apartment sector continues to struggle with an identity crisis that sees it effectively sidelined by investors.
While those active in the sector across Europe are experiencing strong demand and growing revpar, a lack of clarity about the offer to consumers is leading to concerns that business is being missed. And the issue of defining sub-sectors in a business that moves all the way from long-term corporate housing, to studios rented by the night alongside hotel rooms, means the investment community finds it hard to understand.
Despite these outstanding issues, industry operators were upbeat at the recent Serviced Apartment Summit in London. Initiatives are under way to help deliver a quality ranking system, and to clarify the use of terms. And most of those at the event were clear that the market appears to have plenty of room to grow.
Arlett Oehmichen of HVS noted that France has the most mature serviced apartment market in Europe, with a classification system in place, and a high percentage of branded stock that covers secondary cities as well as gateway locations. The country’s pipeline includes several Adagio and Staycity branded properties.
In Germany, the serviced apartment market is growing strongly in the country’s key cities, and completed units are performing well with an average 80% occupancy. Ascott is the brand with the strongest pipeline, and a 2014 certification scheme has improved consumer transparency.
The UK’s market was skewed by a development dash ahead of the 2012 Olympics, after which there has been a lull. However, in common with Germany it sees 80% occupancy, averaging GBP115 room rate, and has a pipeline of more than 2,000 units in the next five years, the vast majority of which will be in London. Included in these will be two new projects recently signed by Adagio. However, the market has yet to adopt an official classification system, though initiatives are under way, with clarity being drawn between corporate housing and aparthotels.
Also looking to round up the sector under a grading system is The Apartment Service, an umbrella brand and booking agent supporting smaller players in the market across Europe. Group members own and operate more than 450 apartments, and have an alliance with a US partner.
Shining a light on the distribution of demand, and setting aside the myth that serviced apartments are mainly for corporate customers, was STR Global’s Thomas Emanuel. In the UK, it is Saturday nights that see peak occupancy of over 85%, and the highest room rate, while Tuesday and Wednesday are the next busiest days. Taking a more granular look at UK markets, he noted that an oversupply in Birmingham is evident, with revpar down 14.7% so far in 2014, compared to a 10.4% increase in Liverpool, and 16% increase in Edinburgh.
Among UK operations growing fast are London specialist City Marque, which is hunting for further expansion space in the capital, and Irish brand Staycity, which is expanding fast into mainland Europe. Chief commercial and development officer Anthony Carragher said the brand’s new Deptford and Greenwich locations were performing ahead of target, and it has a wishlist of several more UK city locations for expansion.
Among those frustrated at the lack of traction was Diane Mayer, VP and global brand manager at Marriott’s Residence Inn. Coming from the US, she sees her own Edinburgh location performing well, but her team is struggling to gain traction and sign sites elsewhere in Europe. With her home market well documented, and Residence Inn being one of the Marriott group’s top performing brands, she expressed surprise at the apparent lack of decent market data on the potential for growth.
Also expressing frustration at a lack of granular information was Denise Grant, Vice President at GIC Real Estate. Grant revealed her investment committee had been unable to invest in a potential serviced apartment opportunity, due to a lack of the data they considered necessary to evaluate it.
For those who understand the sector, however, there are deals to be done. Union Hanover, which with its backers is planning to shortly launch its own Urban Village aparthotel brand, recently acknowledged the need to deliver sites to the sector, by signing leases on two east London sites with Adagio, that it had previously been planning to develop and operate itself. Taking advantage of the Adagio covenant, it has now put the two projects up for sale, seeking GBP110m for the pair, which it will develop out to Adagio’s specifications. While apparently passing up sites to a rival, Union’s Eric Jafari has taken the view that that London serviced apartment market is plenty big enough for everyone to succeed.
The summit finished with a look ahead to the challenges and opportunities faced by the sector. Among those scoping out its potential was Patrick Smith of IFA Hotel Investments. Although a major international player in hotels, Smith said there might be the potential to extend its hip Yotel compact hotel brand into the serviced apartment space.
Also looking ahead was panellist Max Thorne, who spent 20 years with Bridgestreet and is now planning an upcoming launch in London of his Oaktree Capital-backed CL Serviced Apartments. He warned that consumers are less bothered by sectors, and more are interested in accessing their accommodation across an ever wider range of platforms, from Airbnb to social media. Be up with these, he warned, or miss out.
HA Perspective [by Chris Bown]: Like an excited bunch of entrepreneurs playing with something bright and new, the summit delegates appeared to be in a game that the stuffy world of mainstream business just hasn’t got its head round yet. Anecdotally, occupancies are high and returns good – it’s just that no one can throw enough consistent numbers at investors yet, to convince them to back new aparthotels. Even the big brands appear to be struggling to gain traction; while the smart private equity players are investing all they can.
Moves are afoot to pin down definitions, and to help customers by having a star rating system. But even without these supports, aparthotels appear to be tapping into a leisure as well as a business audience, who don’t want room service, a trouser press, mini bar or a pay movies TV; preferring instead to have great wifi, a sink, and a fridge. And thanks to new distribution channels, notably those that have emerged as part of the so-called sharing economy, consumers are increasingly being offered the alternative directly alongside hotel rooms. Take your pick.