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Mind the (market) gap: Serviced apartments spring up in London

Serviced apartments have long been a popular accommodation option in cities in Asia Pacific and the Americas but they've never really taken...

April 05, 2016

Serviced apartments have long been a popular accommodation option among travelers in cities across Asia Pacific and the Americas but they’ve never really taken off in Europe. Until now, that is.

In recent years Airbnb has stoked enthusiasm for short stays in rented apartments with the number of listings for residential properties shooting up to meet demand in global cities including Paris, New York and London.

A growing number of companies and investors are now seizing the opportunities to develop the serviced apartment market in Europe’s cities – starting with London.

Max Thorne, JLL’s Hospitality Managing Director, explains more about what’s fueling investor interest and driving the market.

Mind the (market) gap: Serviced apartments spring up in London

How are serviced apartments filling a gap in London’s accommodation market?

Consumers’ buying habits have really changed. This has been significantly demonstrated by the evolution of the sharing accommodation market and in particularly Airbnb. The consumer is now saying: ‘When I stay away from home, I don’t need a concierge or front desk to organize things for me. I can look after myself. I’ve got my smartphone which gives me information about where I’m visiting. I’m far more interested in getting the space I want’.

High demand for this ‘space-first’ model of hospitality has been demonstrated by the worldwide success of Airbnb, whose latest value stands at $10 billion. It was only set up in 2008. In June 2012, Airbnb announced 10 million nights booked, doubling business in five months; the consumer is clearly demonstrating an accommodation requirement and preference.

Logically, serviced apartments are more regulated and less haphazard than Airbnb because they provide a guarantee of standards and quality. They fill the space between structured hotel accommodation and non-standardized Airbnb accommodation. It’s a space that customers want filled.

Occupancy levels for London’s existing serviced apartments are already better than for its comparable hotels set, standing at 90 percent. Which offers investors and operators significant comfort in the under supply of the current market place alongside revenue yield opportunities

What can London learn from markets with established serviced apartment sectors?

"Serviced apartments, or aparthotels as they are also known, have long been a significant part of the business landscape in Singapore, Hong Kong, Australia and the Americas where they tend to be privately owned, operating on a small-scale, and catering for both business and leisure travelers. With comparatively very few properties, the UK market is currently decades behind these regions. Customers are almost exclusively business on extended stays, despite London’s top tourist destination status. However herein lies the opportunity.”

Why London next among European cities?

Occupancy levels for London’s existing serviced apartments are already better than for its hotels, standing at 90 per cent. And, more importantly, investors in London residential can now automatically invest in this asset class at in the same time.

Thanks to 2015 legislation, residential owners can now provide and charge for temporary hospitality accommodation for up to 90 days a year without having to gain permission from any authorities. This relaxing of previous restrictions on residential accommodation opens up all sorts of opportunities for serviced apartments. And this further supports the serviced apartment market by bringing further exposure to this hospitality apartment experience.

What makes serviced apartments a good investment opportunity?

The opportunity for investors is very much like that presented by student housing which has now become an established asset class. They have a cost base and an employee count that is above residential but below hotels’, their revenue typically equals hotels, and yet they are currently priced below both of them.

Investors and hotel owners are already diversifying their portfolios. There are many mixed use opportunities. We are now living in a world where there are many different accommodation types catering for many different travelling needs.

How do you see the sector developing?

Leisure consumers are now thinking beyond hotels. Serviced apartments tend to be 20-30 percent larger than a hotel room and offer a value-for-money stay that is longer than hotels’ but shorter than a residential lease. Because Airbnb has shown leisure travelers that they can stay for just a few days in an apartment – be it a private home – we are already seeing families and couples choosing serviced apartments in London too.

One day we may well see serviced apartments looking and feeling much more like people’s homes and being traded by hotels as residential.