Special report: Serviced apartments

The serviced apartment sector is growing globally, so why is there still confusion over management and booking? Felicity Cousins asks the experts

WHEN A TRAVELLER HAS A conference in Manchester he can choose to travel by train, bus, plane or car – but when he gets there, where does he stay? Most buyers agree that the traveller will choose a hotel.

Stephan Hylander, global travel manager at Volvo Group, explains why this may be the case: “It’s seldom a choice between hotels and serviced apartments, but rather a matter of length of stay,” he says. “Serviced apartments are neither mandatory nor very common yet for short stays, so it’s really up to the traveller to decide.”

But hotels are not necessarily a comfortable or cost-effective choice if the trip is for more than a few nights, so if serviced apartments are available as part of a travel programme, why aren’t travellers choosing them?

Jo Layton is Bridgestreet’s senior vice-president of sales and marketing for the EMEA region. She believes that while buyers have got to grips with the sector, it is the travellers who need to be educated. “Over eight years I’ve seen huge changes,” she says. “Buyers used to look at me blankly when I talked about serviced apartments – but that has changed and, at the moment, it’s the traveller who doesn’t understand the alternative. I think it will be another two to three years until tipping point.”

Hylander adds that travellers are free to choose serviced apartments if they wish: “As long as the selection of a serviced apartment is complying with policy, we don’t regulate the traveller’s choice.”

One of the issues for the serviced apartment sector is that travel programmes sometimes bundle all accommodation into one category, so serviced apartments get lost in a global hotel programme. Or the reverse can happen, where hotels and serviced apartments are in separate programmes – but with this model the traveller’s choice can be channelled into the more dominant sector, depending on the travel policy.

As Jo Redman, marketing director at SACO serviced apartments, explains: “It depends how good the buyers are at understanding the sector, and how they have written the travel policy to be channelled into hotels or serviced apartments.”

Volvo Group’s Hylander says: “We have contracted a couple of serviced apartments for our top destinations and they are rapidly gaining in popularity. However, we have not specified the type of property in our travel-and-meetings policy, as they are included as an option in our global hotel programme.”

This is where TMCs can help out. HRG sources serviced apartments according to traveller needs. Margaret Bowler, HRG’s director of global hotel relations, says: “Corporate awareness of the sector is definitely growing, and we deal with a lot of apartment programmes rather than just transient stays running alongside clients’ hotel programmes.”

But Carolyn Davies, procurement manager for sourcing and procurement specialist Profitflo, says the use of serviced apartments where necessary needs to be a more natural process. She thinks more TMCs should be more forthcoming about accommodation options. “If they [the TMC] came to me and said: ‘We’ve done your hotel programme, but we have some better options with serviced apartments that will save you money,’ then I could communicate that to my travellers and make sure they knew they should book serviced apartments for a certain length of stay. I think I could be putting more pressure on TMCs to include serviced apartments, too.”

Bridgestreet’s Layton thinks some TMCs book hotels instead of apartments because the process is less time-consuming. She explains that to ensure TMCs adhere to booking apartments, the buyer needs to be contracted to the apartments. “We are working with a great number of brilliant TMCs and they know how to use us. If the buyer is contracted then the TMC becomes very astute in the booking process. It is an education process.”

SACO’s Redman says there needs to be even more “joined-up thinking” within the industry. She explains that for newcomers, using serviced apartments can seem so complicated that they stick to hotels, and this behaviour is passed down to the traveller. But the sector is working hard to change this.

“Education is an on-going challenge for the industry, both nationally and globally,” says Redman. “ASAP [the Association of Serviced Apartment Providers] and other providers recognise this and are working to try and address it, but buyers in the UK definitely have serviced apartments on the radar. ”

Buyers’ awareness is good news for serviced apartments, and the increased demand for the sector is having a positive effect on its growth across the UK and Ireland.

A survey in January by ASAP quizzed its 56 members about 2013, and 74 per cent of them expected their business to increase overall. It’s not just a small increase either. Half of those with positive outlooks expected an increase of up to 10 per cent and only ten members expected their business to stay the same level as last year.

SACO’s Redman, however, points out that 2012 was not a normal year. “A lot of extra stock was brought on to support the potential demand for the Olympics, so 2013 is quite hard to predict – but London, being London, is a busy city, so the supply of apartments will continue to increase.”

London’s stock of serviced apartments was recently the focus of a 2012 report by Savills and Go Native. According to the report, there are 8,200 apartments in central London, with known future supply suggesting an extra 1,200 units in the next five years (an increase of 15 per cent). Compare this with future hotel stock – there are an estimated 56,000 rooms in central London with an additional 4,700 to be added over the same period. Is London’s serviced apartment stock and availability an issue for buyers?

Procurement service Agrega’s head of global travel, Thomas Lorenz, doesn’t think so: “We use them in London and our top stays are in serviced apartments because it is a good way of saving money. Although we don’t have a very mature programme in this sector, London does have a mature serviced apartment market – we have some great uptake and no problem with availability.”

Patrick Hegan, international partner relations manager for serviced apartments agency Silverdoor, agrees: “London has an enormous amount of successful professional serviced apartment operators. It’s very mature and business travellers know it – this is a success story.”

However, Go Native’s founder and CEO, Guy Nixon, thinks the serviced apartment sector is losing out in London compared with other major business destinations globally. According to the Savills/Go Native report, Hong Kong has 5.3 serviced apartments per 1,000 business travellers, Singapore has 2.8 per 1,000 and London has less than half of that, with 1.2 apartments per 1,000 business travellers.

Nixon says: “London is chronically undersupplied and the downturn has been complex. There has been a lot less debt available to support any development and, at the same time, London is seen as a safe haven for overseas investors, so they are pushing prices up – not entirely helpful for people trying to get hold of properties.”

Marlin Apartments owns all of its six properties in London and has 700 units across the capital. Marlin’s managing director Susan Cully says: “It is difficult because we like new-builds, but although we have no firm plans for further development in London, there are still possibilities within this market – never say never.”

Go Native’s Nixon also thinks planning has been a big factor in the capital’s serviced apartment development. Planning restrictions in certain areas of London can prevent some serviced apartment blocks from operating for short stays – often imposing a minimum 30-day stay. To get around this, some apartment operators have to hold hotel licences to be able to offer shorter stays. Nixon points out: “In Asia there is no distinction, which makes it easier for operators out there to be more flexible.”

London’s stock is often clustered around certain areas. According to Nixon, there are more serviced apartments in Canary Wharf than there are hotel rooms, but SACO’s Redman believes this may change. “We might see a reduction in supply in Canary Wharf in the next 12 months – there is potentially an oversupply of apartments there, whereas in the City there isn’t enough because it’s harder to bring on new stock.”

While the UK and Ireland have seen growth and expansion for many operators, what is the global outlook for the sector? Stuart Winstone is business partnerships director at Silverdoor. He says: “We expect 2013 to be much more settled and anticipate further growth, as a result of both corporates trying to reduce hotel spend and the worldwide increase in serviced apartment stock.”

Bridgestreet also reports that its biggest growth has been through its global solutions centre, where global bookings tripled in demand year-on-year from 2011 to 2012. Bridgestreet’s Layton says this is because “programmes are expanding worldwide and buyers are adding new locations.”

But organising a global programme will throw up different challenges for buyer and booker. Apart from the different standards in different regions, each market has its own trends and rules on length-of-stay, making it more complex than simply booking a hotel.

Rebecca Hollants van Loocke is UK general manager for owner-operator Ascott. She says: “Globally it is still a growing market, there is no doubt about that – although, of course, different regions have different demands.” For example, in London, Paris, or Frankfurt the demand for a long stay is limited compared to what it is in Asia, where people are relocating and, because the rental market is less mature, people stay longer in serviced apartments.

SACO’s Redman adds: “Asia and the US are very developed markets, and the trend is for long stays. These parts of the world may have a minimum of 30 days’ stay or, sometimes, three months – they don’t do a couple of nights or a week, as we do in the UK, so readily. So it is quite complex and difficult for buyers to understand.”

Early indications of the contents of The Global Serviced Apartments Industry Report 2013-2014 – which is currently being written, and will be published by The Apartment Service in June – suggest that serviced apartment operators have similar concerns to Redman. The Apartment Service’s managing director, Charlie McCrow, says: “The sector needs to uniformly agree and provide more clarity about of the types of properties offered, services provided and the sector variants – that is, extended-stay hotels versus serviced apartments versus private properties – and to create greater awareness of these.”

McCrow explains that the report frequently cites the need for more internal governance by operators and their associations, as well as clearer external legislation by local authorities on planning permission. “Having more defined operational service models would, in my opinion, encourage the sector to flourish and at the same time provide better regulation and safety to guests who, for example, will know what to expect,” he says.

For companies looking at increased travel to emerging markets, the apartment sector is ripe in certain areas.

Ascott was an early major player in China and other operators are following suit, but it will be a while before the sector has the availability buyers will soon demand.

Silverdoor’s Hegan says: “China is ideal for serviced apartments because people who travel there stay for long periods.” In India, growth is also on the increase but Hegan points out that infrastructure may be an issue there. For example, one of the much cited benefits of staying in a serviced apartment is saving on hotel restaurant bills and meals out, but in India shopping for fresh food and getting around cities may be difficult and time-consuming, negating any savings, and frustrating the traveller.

Hegan explains: “Although it is a key business market, India is a clear case of its infrastructure not keeping up with the modernity of its buildings. But it is a growing market, and I looked at five different cities on my last trip.”

The issue of standards is still a sore point for the sector and, with no universally accepted star rating system in the UK and globally, buyers have to trust in brands and relationships with suppliers. SACO’s Redman says different standards can make it confusing for the buyer and the traveller: “Serviced apartment models and standards vary hugely in the UK, and globally that problem is exacerbated – what one country calls a studio apartment is a serviced apartment in another.”

Although China and India have seen a huge investment from the sector, Russia seems to be a tougher nut to crack, but there is interest from operators looking to develop in the country. Go Native’s Nixon travelled to Moscow in February to look at different types of properties. He says: “Russia is a very similar market to London, in terms of profile of demand, with one- to six-month lengths of stay.”

Ascott’s Hollants van Loocke adds: “We have a property in Georgia and are working with owners with properties in Russia, and it is definitely on the agenda – but we feel it is better to enter with partners who have a full understanding.”

While the sector is busy expanding its reach across the globe, what about an expansion in booking solutions? There are many ways to book serviced apartments: by email, phone, online, through a third-party provider and, increasingly, on the global distribution system (GDS) – but buyers often tend to want all content to be booked through the GDS. The reasons for this are that it keeps their data in one place, it ticks the boxes for the security and whereabouts of travellers, and it’s easier and quicker than making a call.

Profitflo’s Carolyn Davies says: “It would be great if serviced apartments were on the GDS, so we could see how much an apartment was for four nights and select it if it was cheaper than a hotel. But because we encourage our travellers to use the online booking tool, and serviced apartments are not on there, our travellers don’t use apartments.”

However, for longer stays there’s still no doubt the personal approach is needed when booking an apartment, and one of the most frustrating aspects of the relationship between traveller, buyer and provider is this lack of understanding. James Swift is head of business development for Skyline Worldwide. He says: “We often have to explain why we don’t go on the GDS. It works for hotels because they have 350 rooms in one building and accept tons of bookings, but one of our properties has 80 apartments and another has 12, so the model doesn’t always work.”

However, Swift explains that adapting to the needs of the buyer is important, and offering several channels to book through is possible. “Quite a few RFPs [requests for proposals] do specify you must be on the GDS, but we offer our online booking and reporting tool, Skylinc, as an alternative for clients.”

Agrega’s Lorenz says: “If they [serviced apartments] are crying out for business, but they don’t want to pay to be on the GDS, then they will cry.”

Volvo Group’s Hylander adds: “Some of the serviced apartments are available through the GDS and some not, which I think is why our usage is still pretty infrequent.”

But operators say the real issue about booking and the GDS is with communication and relationships between buyers. SACO’s Redman explains that some buyers say they won’t work with operators who are not on the GDS, but then they don’t book the property even when they are added to the GDS. “Putting apartments on the GDS helps, but there needs to be awareness and communication,” she says. “Just throwing them on to the GDS doesn’t necessarily bring bookings flooding in.”

Skyline has decided to roll out its use of the GDS at some point this year but Swift is keen to say that the company will still take a personal approach to all bookings. “We have buildings in Canary Wharf with 80-plus apartments, which would be ideal,” he says. “However 30 days-plus needs to be carefully managed and it needs human interaction, so we don’t just accept all GDS bookings across the board – we can’t go fully one way or the other.”

Ascott has a long-stay reservation service for the more finite details when booking a serviced apartment. As Hollants van Loocke points out: “It is all about the personal relationship – the longer they are booking for the more personal that conversation.”

Marlin Apartments’ Cully agrees and says the sector needs to watch current booking trends carefully to keep up: “We are on the GDS, and some bookings come through the GDS, but a hell of a lot is done through relationships with buyers. There is also a bit of a trend of the traveller booking their own accommodation, so the market seems to be constantly evolving and we need to change with it.”

The new Global Serviced Apartments Industry Report by The Apartment Service will be available in June at apartmentservice.com

HOTEL BRANDS HAVE started muscling in on the apartment party by offering extended-stay options to their guests. In the UK, IHG’s Staybridge Suites arrived in Liverpool in 2008, followed by Newcastle in 2009. Silverdoor’s portfolio includes Taj’s luxury residences at 51 Buckingham Gate.

Marriott Executive Apartments offers a luxury option in Docklands with West India Quay apartments, and last year Jumeirah Living launched the Grosvenor House Apartments on Park Lane.

Jumeirah sales

director Steve Thorne says: “The market has expanded in the last 15 years in London, but we are providing a service beyond a serviced apartment and the hotel element will play a much bigger part with us.” The 133 apartments range from a studio to a five-bedroom penthouse, and services include 24-hour concierge, daily maid service, business facilities, an executive boardroom, gym, spa, 24-hour in-residence dining and secure access.

Go Native’s CEO Guy Nixon doesn’t see this type of apartment accommodation as a threat to serviced apartments. “I am a purist and we don’t regard those as really being serviced apartments because the service levels are so high. We don’t see them as competition but as a completely different product,” he says.

Marlin Apartments’ managing director, Susan Cully, accepts the extended-stay model as a positive development. “Competition is good and serviced apartments hold a tiny percentage of overall accommodation so, if hotels enter this space, they will raise awareness of the sector,” she says.

Adds HRG director Margaret Bowler: “Apartment providers will say what they offer is different to extended-stay hotels, but a long stay alongside a hotel, where you can use all the facilities, is the best of both worlds. However, many apartments offer these facilities, too, and a lot of corporates have negotiated rates with apartments.”

The Grosvenor House Apartments have set themselves apart from other extended-stay options by calling themselves a ‘hotel residence’, but does the industry really need another type of property in the mix? Thorne says: “We are defining ourselves as a hotel residence and, if we can set the benchmark as a hotel residence, it’s natural for some providers to strive for it.”

Stephan Hylander, global travel manager, Volvo Group

“WITHIN VOLVO GROUP, serviced apartments are most common for our short-term assignments and extended business trips. They are mainly requested for our top destinations, where we have a relatively high number of travellers. Asia seems to be the region where a serviced apartment is most frequently selected for short-term stays.

“For longer assignments, we have a dedicated international team within Volvo Group, who take care of issues such as lodging, insurance, schools and so on, and they don’t usually apply the regular travel ordering process.”

DEFYING GLOBAL MARKETS, BRAZIL, the world’s sixth largest economy, has enjoyed an average annual economic growth of 4.5 per cent between 2004 and 2010 (7.5 per cent growth in 2010). Although the economy has recently slowed, with the International Monetary Fund projecting a 1.5 per cent growth for 2012, Brazil is looking forward to hosting the World Cup next year and the Olympics in 2016.

Patrick Hegan at Silverdoor thinks the events in 2014 and 2016 won’t affect long-term accommodation prices, just as it didn’t with the London Olympics. “I’m not convinced the World Cup and the Olympics will see substantial growth for Brazil. It’s a longer term view in business growth and a huge growth in economy – it is great to have these events but I’m not sure the connection is there for long.”

The hotel market is well established in Brazil, but what about serviced apartments? Emerging markets can be a tricky place to do business.

Thomas Lorenz, head of global travel at Agrega, says: “Brazil is a real issue for us. We look at the allocation of hotels but it is hard to pay the right price in Rio de Janeiro and Sao Paulo, as the hotels are not forthcoming with long-stay rates because they are always full. On the whole, the serviced apartment offering is not quite as developed as in London and New York.”

So why aren’t all the operators flooding in? James Swift, head of business development at Skyline Worldwide, says: “It’s a very difficult market place to crack unless you are Brazilian.”

Skyline Worldwide has a Brazilian managing director and, while it has a strong presence in London, the company currently operates 90 apartments in Sao Paulo, plus a network of suppliers from its Alliance programme offering 4,000 apartment units in 25 cities across the country.

Francine Migliorati, Skyline Worldwide’s South America general manager, says: “An international company may find it difficult to get into this market for many reasons, such as high taxes, complicated and lengthy legal processes, a protective legislation, employment laws and costs.”

The Apartment Service’s managing director, Charlie McCrow, says: “The problem with Brazil is that nothing happens quickly and it is bogged down in a lot of other infrastructure developments. There is also a huge demand on a limited supply.”

Skyline’s Migliorati adds: “The idea of a low cost of living in Brazil can also be misleading, especially in cities like Rio de Janeiro and Sao Paulo, where the cost of living is currently being compared to cities like London and New York.”

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