The UK serviced apartment sector achieved a modest uplift in occupancy in 2017 to hit 81.7%, with London and Edinburgh the top performers, according to figures from STR Global.
The study, conducted with the support of the Association of Serviced Apartment Providers, came as Cycas Hospitality opened its first property in continental Europe and expanded its acquisition and development team as it planned to treble its estate.
Cycas opened a dual-branded property under Marriott’s Moxy and Residence Inn brands on Amsterdam’s western harbour front in the Houthavens area. They will be managed by Cycas Hospitality under a franchise from Marriott International.
With a key focus on the UK, the Benelux countries, France and Germany, Cycas’s ambition is to treble its number of guest rooms from 3,000 open and operating, or signed and in the pipeline, to more than 10,000 in the next five years.
John Wagner, founding partner of Cycas Hospitality, told Hotel Analyst: “As the sector is not well understood by many corporate buyers, our main customer segment, it’s critical that we educate and convince them of the value of extended-stay hotels.
“Being part of a major brand gives those new to the sector that added reassurance, while the brand global sales teams help communicate the characteristics and benefits of extended-stay hotels to these all-important buyers.
“This is even more important outside of London, where the number of professionally-operated serviced apartments is low in relation to more traditional hotel stock. Many corporate buyers are simply not yet aware of the option of extended-stay hotels as a lodging alternative for their travellers so, until our sector has a higher profile, that link to a larger system and the familiarity of a well-respected global group is key.”
Commenting on the competition for sites, Wagner added: “As the segment gains momentum and credibility with investors and developers, competition for sites is at a fever pitch.
“A good site doesn’t just get competition from other operators and extended-stay brands. Each site will have plenty of development options to choose between, including residential and office development proposals, so it’s vital that we are able to put the strongest case forward for the potential of extended-stay and dual-branded properties.
“The over-optimism of some operating competitors can prove to be a challenge. When the inevitable economic downturn arrives, many of these properties, which have made extraordinary promises to its owners and banks, will fall short. In the long-term, this may also present opportunities for more cautious and experienced operators in our field.”
The report from ASAP and STR found that the rapid expansion of the sector had seen occupancy hit outside the capital, but that optimism remained high, with the traditional hotel sector increasingly seeing it as a must-have addition to their portfolios.
The pair reported a 0.2% increase on 2016’s occupancy rates, with ADR rising by 5.4% to GBP148.48. London saw a 2.2% increase in occupancy to 83.8% with ADR rising by 9,8% on the year to reach GBP198.74.
Across the rest of the UK occupancy fell by 1.7% to 79.7% with rates seeing a modest 1% rise.
Edinburgh recorded a 0.4% growth in occupancy to 84.4% and a 7.3% increase in ADR to GBP119.21.
James Foice, CEO, ASAP, said: “It’s really fantastic to see our serviced apartment sector continuing to perform very strongly in 2017 in spite of the economic uncertainty and the significant increase in supply, which proves that the consumer demand for this alternative way to stay continues to grow at a very impressive rate, year on year.
“We are very excited about the many new developments opening right across the UK in 2018, which includes properties in Southampton, Manchester, Edinburgh, Glasgow, London and Brighton, reflecting the undaunted confidence in our sector as operators continue to accelerate their expansion plans.”
Thomas Emanuel, director of business development for STR, added: “Although results were quite mixed across UK markets, it is encouraging to see that overall performance levels in the serviced apartment sector continued to grow in 2017.
“Supply growth has been considerable, which confirms the high level of investment interest in further developing this sector, but strong demand growth and the ability of operators to drive rate growth in several markets are positive indicators for how the sector will continue to adapt as its inventory expands.”
HA Perspective [by Katherine Doggrell]: According to Hotel Analyst’s forthcoming report, the Emerging Accommodation Segments 2018, the serviced apartment sector was one of the fastest-growing sectors in the UK. The country saw CAGR of 6.8% pa between 2013 and year end supply 2017, with the total units rising to over 21,500 units and the sector forecast to expand by 21% between 2017 and 2020, equating to approximately 23,500 apartment units.
The report found that, as the serviced apartment market grows in prominence, the global hotel operators have started to appreciate the need to offer a competitor. The leisure sector consumer, trained by brands including Airbnb, has also started to utilise serviced apartments, meaning that the large hotel majors must offer them up as an option.
This has led to a blurring of the lines between serviced apartments, aparthotels and the traditional hotel sector, which has put pressure on returns as more services are demanded. Stopping the serviced apartments from slipping into the costly realms of the hotel sector will require a certain imagination on the part of operators – weekly drinks hosted by the GM rather than opening a full bar, for example. As the UK continues to run dry of staff, now would not be the time to pile labour-intensive services on. As Wagner notes, the downturn, when it comes, will sort hope from experience.