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July/August 2017
For Business, Corporate Travel & Meeting Buyers & Arrangers

Serviced Apartments: Great Expectations

IN OCTOBER 2007, WHEN AIRBNB COFOUNDERS BRIAN CHESKY AND JOE GEBBIA first came up with the idea of what was then known as Air Bed and Breakfast, their motivation was simple – they couldn’t afford the rent on the San Francisco loft they shared, so they let out their living room to conference goers who couldn’t find a hotel room. Just short of a decade later, Airbnb has 19 offices worldwide, administering three million “listings” in 65,000 cities across 191 countries. They have simultaneously, though perhaps unintentionally, had a huge impact on the serviced apartment industry.

Having launched the so-called sharing economy, Chesky and Gebbia have persuaded consumers – particularly younger ones – that there is an alternative to traditional hotel accommodation. The serviced apartment sector is reaping rich rewards. Ben Harper, commercial director at SACO, makes no bones about it. “Airbnb is the real reason the profile of hotel alternatives has taken off,” he says. “We see them as the real innovators. They are educating consumers to the fact that there is life outside the traditional hotel room.”

SHAKING THINGS UP

It has been a seismic shift. Only a few years ago, closely regulated serviced apartments were aimed almost exclusively at the extended-stay market, with minimum occupancy requirements of at least seven, and often 30 or more, days. That suited business travellers working on long-term projects, or relocation victims needing a base from which to house-hunt – but almost no-one else. Over time, some of the rules (in some places) were relaxed, and providers were able to offer short-stay accommodation to transient travellers.

Apartments were still more expensive than hotel rooms, but offered greater freedom – to make your own breakfast while still wearing pyjamas, for example, or to enjoy a £10 bottle of wine rather than a £10 glass of wine in a hotel bar. Corporates were, frankly, slow on the uptake – largely because of the (slightly) higher base price, partly because the cost of Tesco Metro groceries is harder to monitor than the cost of restaurant meals, and also, the fragmentation of the sector made bookings and quality control more difficult.

Then, as millennials turned out to have minds of their own and travel manager concerns metamorphosed from ‘traveller safety’ to ‘traveller satisfaction’, all that was needed was a spark to light the fuse. Step forward, Messrs Chesky and Gebbia. A BBT straw poll of top UK travel buyers underlines the point. All our respondents include apartments in their travel programmes, and all have seen increased take-up of them during the past year. Furthermore, all expect to see further increases this year, with “awareness and demand” and “cost-effectiveness” the top reasons for the growth.

Drivers of that growth are many and varied, says Pauline Houston, global director of hotel strategy at American Express GBT but that the sharing economy “is opening people’s eyes to alternatives to the traditional hotel room”. “In the UK, it’s also a bit of a legacy from the 2012 Olympics, because a lot of people couldn’t get into their usual hotels and so had to try something different.” she says. “Once people have experienced an apartment, many of them are hooked. They’re not for everybody – a lot of people see apartments as too much hassle – but particularly for stays of three nights or more, they’re ideal. Who wants to have room service three nights in a row?” Increasingly, Houston says, corporates are looking at the total cost of a stay, and having to pay for breakfast, lunch and dinner, on top of the price of a hotel room, doesn’t compare with the bill for one grocery shop.

Margaret Bowler, global director of hotel relations at HRG Worldwide, takes the travellers’ side. “I was quite shocked about how much people are allowed to spend on food,” she says “£20 for dinner doesn’t go far in a central London hotel.” There are other savings to be made, even if apartment prices are higher than hotels. “One thing that we have seen is where you have maybe two to four people travelling to the same location, they tend to use an apartment as a meeting room,” says Mark Bevan, Business Travel Direct’s head of strategic relationships. “Once you add up the cost of the hotel rooms, and then add on the cost of meeting rooms, the serviced apartment option becomes much more attractive.”

POWERFUL PARTNERSHIPS Travellers and, to a lesser extent, corporates may love them, but for travel managers and bookers, serviced apartments do present challenges. “A large number of providers don’t sit on the GDSs,” says Amex’s Houston. “The number that do has grown in the past five years, but it’s still only a small percentage, and for the TMC that means an increased workload.

HRG’s Bowler adds: “Another problem is that the GDSs only capture one name, so we can’t identify a second or third guest. For us, the ideal booking is a one-bedroom apartment that is on the GDS.” “The supply side is also too fragmented,” says Houston. “Companies with two or three properties just aren’t on the TMC radar. A lot of the smaller providers do recognise that they need representation at a much higher level. The Bridgestreets, Silverdoors and SACOs of this world will give the smaller, niche players the opportunity to get much greater recognition [through partnerships].” Jo Layton, managing director for group commercial sales at The Apartment Service (TAS), would no doubt agree  – its TAS Alliance connects with thousands of independent providers. “Apartment operators that have front-desk facilities in locations where corporate buyers are seeking extended-stay accommodation, and enough apartments to warrant distributing their product on the GDS, have generally now found a provider that can help them achieve the exposure they require on the GDS,” she says. “More predominantly as the online self-booking platforms continue to evolve, and with travellers now becoming more familiar with booking their own travel and accommodation, being able to upload your inventory on to a wider range of sites, that only cost the operator if they receive a booking, has made it much easier to ensure distribution to market.” TAS, among others, has “invested heavily in technology” to support providers and corporates alike. The TAS Alliance allows providers to access each other’s inventories at destinations where they do not have a presence – a “supply chain”. At Oakwood Worldwide – the 2017 Business Travel Awards Best Serviced Apartment Provider – a GDS presence is a valued part of its business model. “We continue to focus on improving the ease and experience of booking our properties through online systems,” says Tom Meertens, Oakwood’s EMEA general manager. “Our new booking engine, which leads the industry in allowing guests to book our inventory directly, as well as offering more properties on the GDS and other alternate booking channels, are part of the [distribution] mix. “We currently have more than 300 properties on the GDS, which not only speeds up the booking process but also makes it easier for many individual and corporate customers to book.”

NEW TRAVEL GENERATION Whatever the booking channel issues, end user demand is certainly on the increase, even if suppliers and intermediaries seem unable to agree on the source of the growth. George Sell, editor of Serviced Apartment News, says: “Official data is thin on the ground”, but that “transient” business is probably behind the upturn. “Whereas in the past companies would have used apartments for a week or more, buyers say that travellers request to use them again – even if it’s only for a trip of two or three days,” he says. Oakwood’s Meertens goes into greater demographic depth. “We are seeing more business from the millennial audience, supporting the data that they see global experience as significant in their professional development – 71 per cent want and expect an overseas assignment during their career. We expect this group to continue to drive growth in the coming years.” HRG’s Margaret Bowler has a more down-to-earth assessment: “The new generation of travellers will sleep anywhere, as long as they have their own bathrooms.” SACO’s Ben Harper takes the “once tried, never go back” line, while Business Travel Direct’s Mark Bevan says that today’s travellers are “much more willing to try new things”, basing their decisions on review sites. Airbnb’s founders may be unaware of their impact on the serviced apartment sector, but in raising the profile of “alternative accommodation” possibilities, they have transformed the global hospitality sector. They have also transformed their own bank balances – worth an estimated US$3.8 billion each, they no longer have problems paying the rent.

A sense of optimism?

SERVICED APARTMENT PROVIDERS’ CONCERNS about the immediate impact of the referendum appear to have dissipated, but there is still plenty to worry about. A year-end Sentiment Tracker Survey by the UK’s Association of Serviced Apartment Providers (ASAP), in partnership with estate agency Savills, suggests that operators overall were more optimistic about business prospects than they had been in the summer. And not all operators saw Brexit uncertainties as a problem in the first place. Mark Walton, chief operating officer of Roomzzz, which opens its first London property in Stratford this autumn, said: “We have seen a huge surge in bookings in the months following the Brexit vote and it seems that the fall in value of the pound encouraged more UK residents to look at city breaks

at home, rather than abroad. Equally, we’ve experienced an increase in bookings from international tourists who are capitalising on their favourable exchange rates and visiting UK cities.” Furthermore, although one in eight operators said they would be scaling back growth plans in 2017, more than a quarter of respondents (28 per cent) said they would be accelerating their expansion programmes this year. They may have their work cut out. The survey also indicates that “wider economic conditions”, punitive business rates and the rising cost of acquiring new properties are seen as the major challenges. Nearly two-thirds of the survey sample (63 per cent) are concerned about the wider economy, while 58 per cent worry about business rates. Tom Meertens, EMEA general manager at Oakwood Worldwide, identifies other

hurdles. “As companies look to expand, there is greater competition for new properties,” he says. “Growth could be stifled by a simple lack of properties that are suitable for a serviced apartment offering, with rising house prices and increased competition also contributing. “Local regulations may also impact the ability to secure properties in some locations for shorter stays, with private lets below certain time periods being prohibited in some areas. In Westminster in London, for example, the lower limit is three months.” That said, it seems there are still plenty of companies willing to flash the cash. Max Thorne, MD of the serviced apartments team at commercial property specialist JLL, says that better data, improved product awareness, and “evolving consumer habits” are all having a beneficial effect.

“The serviced apartment sector is maturing and growing at a rapid pace,” he says. “The sector now accounts for six per cent of total hotel investment volumes compared to just two per cent in 2011.” Speaking at his firm’s annual convention in December, ASAP chief executive James Foice hailed a “very strong” development pipeline, with more than 2,000 serviced apartment and aparthotel units due to open this year. Marie Hickey, Savills’ director of commercial research, added: “There are a number of potential headwinds facing the sector into 2017 around operational performance with operators rightly identifying wider economic conditions and business rates as posing significant challenges to their business over the next three years. “However, the sector as a whole remains well-placed to weather these challenges.”

A dynamic global sector

ACCORDING TO THE ASSOCIATION OF SERVICED APARTMENT PROVIDERS (ASAP), there are close to 800,000 serviced apartments globally, with the US accounting for more than half of the inventory, and most of that in so-called aparthotels. In Europe, the most developed markets are the UK and Ireland, France and Germany and, to a lesser extent, Scandinavia, which leaves a vast swathe of opportunities across the southern half of the continent. However, for Silverdoor (the 2016 Business Travel Awards Best Serviced Apartment Provider winner) the focus is shifting to the Far East, with the opening last year of its first office in Singapore. Commercial director Stuart Winstone says: “2016 was a monumental year for us as we completed the acquisition of Citybase, our biggest competitor. We took it over in

May, and have been working behind the scenes ever since to bring the two companies together.” That work is continuing, but the big news is the Singapore opening. “The model is very different,” says Winstone. “In Europe, we are used to dealing with agencies and TMCs acting on behalf of corporate clients, but in Asia there are a lot of secretaries and PAs and other individuals in the mix – it’s a very different, very interesting mix.” Silverdoor had originally planned to open an office in the US, but the Citybase acquisition got in the way. “We were massively over-stretched,” Winstone says (although clearly not so overstretched as to preclude an oriental expansion). In the event, it may prove fortuitous. Much of the Far East market is intra-Asian, with the likes of Ascott

and Onyx dominating the corporate serviced apartment scene, Frasers Hospitality attacking the leisure market, and upscale hotel groups – Shangri-La, Taj, Oberoi et al – offering their exclusive “residences” to seriously high net-worth individuals. With some notable exceptions, however, Asian hospitality companies generally do not have a global reach. Silverdoor now covers more than 500 cities worldwide, and is looking to tap into Asia’s growing outbound business market. The “loss” of a US office may not have been such a bad thing. The US market is saturated with ‘extended-stay’ offerings from the major hotel chains – Springhill, Fairfield and Towneplace from Marriott, Homewood and Home2 from Hilton, Staybridge and Candlewood from InterContinental, and so on.

Their global scale and marketing power make North America something of a daunting challenge for new entrants. Aparthotels are making their mark in Europe, too, notably through AccorHotels’ Adagio brand – which celebrates its tenth anniversary this year – but also thanks to Hilton and IHG, among others. Does their growth constitute  a threat to serviced apartment providers? “I absolutely welcome it,” says Winstone, “and I think they have great products. IHG’s Staybridge brand is very popular with our clients. For up to a week or two, that sort of product works well as a sort of stepping stone between traditional hotels and serviced apartments. I think there is room for everyone, and the arrival of aparthotels… well, the true hotels are the only ones who are going to suffer.”

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