• Lessons for hospitality from student and housing markets

The growing focus on developing a professional private rented housing sector in the UK presents opportunities and threats for the hospitality sector. And the student housing sector, which has seen dramatic growth over the last few years – and has been successful in attracting investors – could provide clues for how the serviced apartment market might develop in the near future.

Delegates at the Hotel Alternatives conference heard how private rented sector (PRS) providers are planning to make renting an apartment long term as simple as renting a hotel room. And flexible systems could bring shorter rent terms, allowing potential direct competition with hotels and serviced apartments down the line.

In the short term, the new housing developers are mixing it against hotel and serviced apartment developers, in chasing down development sites. The UK planning system, which is notoriously restrictive, is now favouring commercial uses, as the economy improves; while the housing market continues to suffer from a shortfall of supply.

“What’s happened in the last two years is that a lot more people have joined the PRS bandwagon, and supply has got tighter,” said Ian Merrick of PRS developer Essential Living. “Finding the opportunities is proving challenging.” Andrew Pratt of Patrizia, one of Europe’s largest owners and managers of rented housing, predicted: “Housing is going to be a key issue in the election. It’s a massive issue, the shortfall is getting worse.”

John Walker, a planner at Westminster City Council, had little good news, saying recent changes to the UK’s planning system could further slow down growth. Neighbourhood plans are being introduced, giving local people more of a voice on local development: “No one will want more, most will want less,” he predicted. “That’s the big threat I see.”

“Accommodation should be the same as leasing a car – it should be as simple as that,” said Merrick. “It is about to come into line with other industries. I think we’re in a change of society. The corporates are looking for some way of giving personnel flexibility.”

Archie Hunter from serviced apartment operator Go Native agreed. “The way PRS will develop, I think you will see much more flexibility.”
“I think we’ve got a fabulous opportunity in the UK,” said Pratt. “The quality of the PRS product has improved greatly in the US because of institutional investment. Institutions hold the key to cleaning up the sector.”

Meanwhile, the student accommodation market could provide a model for the serviced apartment sector to learn from. Having developed quickly over the last few years in the UK, it has delivered thousands of residential places into the market, through a succession of purpose built blocks.

Mark Quigley of Barclays was one of the lenders early into the sector, backing more than two thirds of development deals in the 2008-10 period. “We’re seeing a huge weight of money in the market,” he said, with early developers now trading on more mature portfolios. “The new entrants are the pension funds, and private equity. I still see very good growth in the sector.” While there were similarities, he noted hotels are probably simpler buildings to manage: “Running student accommodation is particularly difficult” with a young, naive clientele – who also like to party.

HA Perspective [by Chris Bown]: Talk of strong accommodation brands in the housing market signals major change in UK housing. In just a few years, many residents will be choosing their rental flat based on the strength of a brand promise. And while most talk of housing rental is allied to discussion of longer leases, giving tenants security of tenure, conference delegates held up the prospect of short term options too – putting the new PRS developers potentially into direct competition with serviced apartment providers.

The flip side of this, is that hotel and serviced apartment operators may have valuable experience to bring to the emerging PRS market. Smart IT systems and data management suppliers already active in the hotel sector will also be looking at which of their software can be reconfigured to suit the new PRS managers, too.

What all of these property asset classes have in common, is their need to appeal to potentially the same investors. A strong case has clearly been made by the student accommodation market, while pension funds appear to like the idea of long term rented housing. Hotel and serviced apartment operators and brands clearly need to ensure their pitch is made in an equally convincing manner, to attract funds that ensure new product is delivered into these markets.

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