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Serviced apartments: blurred lines

A look at the serviced apartment sector

Continued expansion of the serviced apartment sector has enticed new brands into the market and they’re redefining this type of accommodation

The serviced apartment sector is doing very nicely indeed. According to Visit Britain, despite a decline in business visitors during the first five months of the year – down 2 per cent to 3.7 million – leisure visits to the UK jumped by 20 per cent to 5.9 million. 

Figures for the first half of 2017 released by the Association of Serviced Apartment Providers (ASAP) and hotel global benchmarking company STR show that RevPAR was up 5.5 per cent nationally and 15.5 per cent in London. The average daily rate (ADR) increased 3.8 per cent to £139.08 in the whole of the UK and 10.3 per cent to £185.58 in London. The capital recorded the highest occupancy at 81.5 per cent, a 4.8 per cent increase on last year, although regional UK reported a 1.4 per cent decline to 76.9 per cent occupancy but with a 1.1 per cent increase in ADR to £90.27.

Performance in 2016 was also encouraging: London and the regions recorded 3 per cent and 4 per cent rate growth respectively, according to hotel valuation company HVS, which conducted a survey and produced a report, The Serviced Apartment Sector in Europe – No Longer the Underdog? Transaction volumes in the UK reached £148 million, a whopping 167 per cent increase on five years ago, according to financial and professional services firm, JLL.

Against this backdrop, there is continued blurring of boundaries between serviced apartments and hotels as length of stay comes down. Stays of seven nights a week have become Monday to Thursday, while hotel stays are creeping up. “Private rental is coming into its own and hotels are getting longer stays,” says CEO of The Apartment Service (TAS) Charles McCrow. “And rental is getting smarter; more investors are seeing the residential market as a good investment now that American companies are bringing in the housing and customer service model. One day, these two will meet.”

An example of this is Essential Living, which buys land and designs and constructs apartments to rent, known as build-to-rent (BTR). “Instead of having a massive churn of people every year, we want them to stay. The longer they stay the less it costs us,” says operations director Ian Merrick. “This is the same as serviced apartments a few years back, when the emphasis was on getting people to stay as long as possible, which reduced the running costs.”

Potential clients include companies such as KPMG and BP which use such properties for relocation. Merrick agrees with McCrow: “The rental market is coming towards serviced apartments and hotels, and hopefully, they will all meet soon,” he says.

Go Native’s entry into the BTR sector is one example, with buildings in Manchester, Croydon and three in London. The company is seeing a crossover with apartment needs: “A lot of business comes from corporate relationships – someone from PwC who stays with us in serviced apartments for three months and gets extended, so they turn a short-term booking into a long-term tenancy,” says marketing and customer experience director Amanda Metcalfe.

“PwC has a flying start programme for graduates who live in our new building in Dalston for six months. It has put people there because it is more affordable than an aparthotel,” she says. “BTR and serviced apartments are complementary and can offer corporate clients a great opportunity.”

Management contracts
Other examples of changing business models are management contracts and franchising. Bridgestreet has agreed a management contract to operate Stow-away, and Cheval Residences is venturing abroad, starting with a management contract to run a property in Qatar, which opens in three years’ time, with other possibilities in the Middle East, Germany and Montenegro. Ascott signed a franchise agreement for two Citadines in Sao Paulo, opening Q4 2017 and 2020, with two more planned for Strasbourg and Nantes. “For markets where we already own and manage properties in Europe and Latin America, franchising will be one of Ascott’s growth drivers for the future,” says its London area manager, Marc Sandfort.

Aparthotel operator Adagio (a joint venture with hotel group Accor), is also pursuing this route, starting with Adagio Leicester Waterfront, which opens in 2019 and will be co-branded with Novotel. Other franchise properties will follow.

Accor may be the grand master of cobranded properties, but Cycas now also claims this as an area of expertise, with construction starting on Residence Inn/ Moxy hotels in Slough, Amsterdam and The Hague, Crowne Plaza/Staybridge Suites in Manchester and potentially a different brand twinning in Paris.

Growth also leads to new brands. While Silverdoor Apartments now focuses on corporate business and Citybase Apartments on leisure travellers, Staycity has launched upmarket Wilde Aparthotels on London’s Strand. “The market is evolving fast and we felt we needed a design-led, premium offer in our portfolio for central locations in gateway cities,” says Staycity CEO Tom Walsh.

Small is beautiful
The continued evolution of the sector has led to the introduction of category-bending micro-apartments. Although not branded as an apartment, Bridgestreet opened its first Stüdyo in Paddington in March with 20 units that start from 9 sqm. These have no kitchen, but there is a full kitchen with dining space in the communal area. “Guests are not behaving as we expected and are staying between four days and five months,” says CEO Sean Worker. “The apartments are whimsical, bright and inviting, and someone already wants to develop a number of them.”

Stüdyo is not alone in ditching the kitchen. Citadines Barbican London’s recent renovation included rooms without kitchenettes, and studios and apartments with kitchen facilities. Citadines Islington will follow suit in 2019. Similarly, standard rooms in Ascott’s new brand Lyf (pronounced life) have no kitchen and guests use a social facility. Two properties open in China next year and a third in Singapore in 2021.

Adagio Access is also going down the route of having a communal kitchen in some properties. “The opening in Frankfurt this year was the first to trial this and with great success,” says deputy CEO for Aparthotels Adagio, Karim Malak. And Visionapartments’ new Livinghotels in Vienna and Vevey also follow this model.

However, an apartment without a kitchen is a hotel room under any other name, which senior associate at HVS, Nicole Perreten, says is “an interesting move, considering that an in-room kitchen was the original USP for the serviced apartment concept”.

Bridgestreet will be running microapartments brand Stow-away, funded by Ciel Capital and Stow Projects. The first property opens on Lower Marsh, London SE1, in October and is a modular construction using shipping containers. Ciel’s CEO, Vedrana Bilanovic Riley says: “Not all locations will use containers, although the quicker you can create the asset, the faster you can start cash-flow, so containers would be the way to go.”

Build is high spec, with marble in both bathrooms and kitchens, and the restaurant will be Unwined, run by the operators of the eponymous wine shop, bar and restaurant in Tooting. Rooms in the Waterloo property are 21 sqm but other Stow-away properties will start at 18 sqm. Ciel and Stow also acquired Central Hall in Birmingham this year, which will be converted into an aparthotel under a US brand that is not yet in the UK – a Stowaway plus retail facilities. The schedule is to be completed in 2019. 

Booking tool challenges
Technology will play a major role in the Bridgestreet micro-apartments property, including a mobile app that will enable access to the room, as there is no reception at the Lower Marsh property. StowAway’s booking technology goes direct to BridgeStreet.com, which Bridgestreet launched this year with channel managers Siteminder, Cubilis, Rentals United and Ratetiger. The company is also developing its open API, giving direct access to the site, circumventing channel managers.

For clients such as UBS, which sources apartments through Bridgestreet and other suppliers, this presents challenges. “We have seen the website, but we still have to customise it and we need to decide which vendors are included,” says Kevin Carr, global hotel programme manager at UBS.

“I’d like to get to a point where we can build an apartment programme which has multiple operators across both a market and a region, and potentially globally as well, and have one booking method for that. Options are available today and that’s what we are looking for the industry to deliver for us,” Carr says. UBS is, however, limited to Bridgestreet’s partners and cannot dictate its own supplier requirements.

“Even if we could do that, we would have to funnel all our bookings through Bridgestreet. We would rather have an independent platform that wasn’t associated with an agent and that’s not available today,” Carr says. “We are moving to a new booking tool – Amadeus Citric – and we’d love to have all the apartment content feeding into that so that our users could shop for hotels, apartments, aparthotels and Airbnb.

“The booking tool is customer-led but the investment has to be made from a technology perspective,” he explains. “We have tasked Amadeus Citric and Bridgestreet to talk to each other to find a way for the Bridgestreet content to come into Citric.

“We need foundational changes and the sector to get operators to work together under the umbrella of an organisation to start making changes in how they source and how corporations or travel agents book,” he adds. “At the moment, it’s a bit of a free-for-all and that’s what we’re complaining about.”

Other operators and agents are also tapping into multiple channels. SACO uses GDS and third-party sites, such as booking.com and Expedia. “We are now exploring sites that target specific geographical locations such as China, and vacation rentals like Homeaway and The Plum Guide,” says SACO sales director Ben Harper.

Clarendon has launched a dedicated website Clarendonbusiness.com. It says that improvements in apartment management software have accelerated the booking process, automated workflow and facilitated live, synchronised reporting across business functions from one system. Silverdoor plans to roll-out live availability, instant booking capability and build integration with the major channel managers.

The sector is not standing still and with booking engines under development, an increasing number of new brands and operators, and changes in operating models all taking place against an uncertain economic background, the future can only promise interesting times.

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