Serviced apartments and aparthotels were the fastest-growing segment of the UK’s hospitality accommodation market, according to Lambert Smith Hampton, with 13% of active pipeline.
The growing enthusiasm for aparthotels came as Soho House raised USD100m to finance its expansion, as non-traditional accommodation continued to flourish.
Soho House sold a 5% stake to a group of property investors, in a deal which valued the company at USD2bn. The funding will fuel growth plans, with new sites due in 2020 and 2021, including in London, Paris and Mykonos, as well as putting impetus behinds its Soho Works shared working brand.
Soho House currently has 23 clubs around the world, opening its first in Asia, in Mumbai, last year. The company has aspirations to open four to five a year and, since its growth has accelerated, has been working with property developers on new projects and moving away from the owner-operator model to focus on operating.
For 2018, the company reported a pre-tax loss of GBP65m, up GBP5m from the previous year, as a result of expansion. Underlying profits rose to GBP56.4m from GBP50.5m.
The Lambert Smith Hampton report found that the serviced apartment sector currently represented 3% of the total hospitality accommodation in the UK, against 9% in the US. Growth in interest was, Lambert Smith Hampton said, being driven by demand from a broader customer base, with properties being increasingly used for short-term stays.
Innovative formats were also blurring the distinctions between serviced apartments, aparthotels and traditional hotels, it reported, with operators such as Native, Locke and Roomzzz developing increasingly stylish, design-led products. Ideas from the co-working sector were also being introduced to create home-office hybrids. While London had historically been the main focus for operators, key target markets for aparthotel operators now included regional centres such as Manchester, Glasgow and Liverpool.
Commenting, Simon Stevens, Lambert Smith Hampton hotels director, said: “The aparthotel sector is currently one of the most exciting parts of the market. While the rise of the Airbnb sector is sometimes viewed as a threat to more traditional types of accommodation, it is actually benefiting aparthotels by making consumers more receptive to alternatives to conventional hotels.”
“With new brands being launched and established operators reinventing their products, serviced apartments and aparthotels will continue to innovate and grow. The sector will remain a melting pot for new ideas; borrowing from alternative concepts such as co-living and co-working to create inventive new hybrids.”
The study came shortly after a similar report by HVS, which said that revpar growth in the serviced apartment sector in Europe was outpacing that of hotels. The report found that revpar was up 7% last year, whereas STR reported 5.2% growth in 2018 for the hotel sector across Europe. HVS said that demand for serviced apartment accommodation was “vigorous” across Western Europe.
This extended to investors, with 9% of loans into the sector in Europe linked to serviced apartments. Lenders reported that debt for serviced apartments was available, although primarily in gateway cities in Western Europe. While debt was available for acquiring existing serviced apartment businesses, the appetite for development financing was smaller.
The UK and Germany representing the vast majority of the total pipeline (32% and 25%, respectively), with the serviced apartment market in Germany experiencing a changing environment with increasing support from international brands marking their entry and expansion into the German market.
The beginning of October saw CBRE Europe Value Partners 2 partner with CR Investment Management to pursue a serviced apartment development strategy in Germany with Stayery, which opened its first site in January, in Berlin.
Christina Forrest, EVP2 fund manager at CBRE Global Investors, said: “We have carried out detailed analysis to identify cities displaying appropriate market fundamentals for the serviced apartment market.
“Germany’s corporate sector is fragmented and decentralised, making it an attractive country in which to launch a serviced apartment venture.”
Torsten Hollstein, CR Investment Management co-founder, said: “We believe there is a strong future market for serviced apartments, and we are convinced by the Stayery concept. That is why we made our first strategic investment in the company last year.”
Alexander Lackner, managing director, CR Investment Management, said: “Stayery’s sophisticated full-service boutique apartment concept appeals particularly to business travellers who, unlike tourists, may have to spend several weeks or even months in a city, and who are interested in modern accommodation where they have the opportunity to meet like-minded people.”
The model was being welcomed into the traditional hotel market in Germany, according to a study in by Rueckerconsult on behalf of Engel & Völkers Hotel Consulting
Of those hotel operators surveyed 70% rated serviced apartments as now established on the hotel market, with 81% seeing them as an attractive operating concept. The previous year’s study saw 78% of operators assuming that serviced apartments would intensify the competitive situation on the hotel market, this year only 64% of the survey participants thought as much.
HA Perspective [by Katherine Doggrell]: Not only are hotels learning to get along with serviced apartments, as they are in Germany, they are developing alongside them, as groups such as Cycas have found with their dual-branded properties. There are advantages for all, with savings back of house and more facilities for all in the front.
It’s not just serviced apartments. An InterCity Hotel in Graz will offer 229 rooms and 187 student apartments in a separate ‘SMARTments student’ accommodation block, with the site due to open next year, in a move which has been seen in Germany and is now spreading.
Concepts such as The Student Hotel have been bringing students into the domain of the regular traveller for some time, commenting that it brings life to a property which otherwise might be staid and transient.
One observer this correspondent spoke to said that they were no longer measuring revenue per guest, but revenue per visitor, as coworking, and just plain hanging-out, grew. The blurring of the lines between accommodation types – and those who use them, for however long – continues.
Additional comment [by Andrew Sangster]: New niches in accommodation are undoubtedly in growth, be it serviced apartments, hostels or similar. But there is a clear pattern. At the outset, when the niche is still nascent, yields are high and investors sceptical. Operators take on fixed leases as they have little choice.
As the market matures, yields drop as prices rise with growing investor confidence. Some operators move away from leases, and effectively ask the property owner to share in some of the risk, both upside and downside.
Perhaps initially it is turnover leases but then there is a move into management contracts and, ultimately, the strongest operator brands start franchising.
Student accommodation is a particularly fascinating example of an operational real estate segment that has matured rapidly. In the UK there are three Real Estate Investment Trusts focused on student accommodation – Empiric, GCP and Unite.
As the market has matured, yields have come in and leases are looking a less attractive option for new operator entrants. In some markets, supply is near saturation meaning a much tougher operating environment requiring ever more inventive operating approaches, including short-lets during student holidays.