Adjacent spaces

Crisis ‘proves model’ for serviced apartments

The virus outbreak has proved the serviced apartment model, according to Paul Caseiras, partner, PDC Advisors.

The sector was now ripe for consolidation, as investors looked to its resilience as mainstream hotels were closed under lockdowns around Europe.

Paul Caseiras, partner, PDC Advisors, told us: “Serviced apartments have done very well and will continue to do even better, this crisis has helped to prove the model. People will want privacy and isolation.”

Steven Smit, CIDO, Yays, agreed, adding: “It’s a good industry and if you look at what’s happening now you can see that it’s more resilient than hotels. Serviced apartments have been fighting for their place in the market for a number of years from an investment perspective, as hotels moved closer to the mainstream. The trend has been sped up because of COVID-19, the model itself has become more attractive. People could see serviced apartments as a lot more appealing because often there are no public spaces. People might book longer and stay longer.

Looking to M&A in the sector, Caseiras added: “There will be smaller providers that will fall away.  Now is a great time to acquire assets whether it be a hotel or a lease.  There are many different operators in this area, it’s very fragmented. It will continue to grow but there will be consolidation.”

Investors have already started to turn to the longer-stay offerings, first with Airbnb announcing a pivot to long-term on the occasion of seeing $1bn in private equity support, then with Blackstone and Starwood Capital buying into Extended Stay America.

The serviced apartment sector was, Caseiras said, evolving. He said: “Serviced apartments are not just about business travel any more, it’s about you and me, it’s about living. We don’t live the same way that we used to - you don’t buy a house and live in it for 25 years - you might move somewhere for a couple of years because you have an opportunity or you want to try the culture. There has been a fundamental change in how we’re living.

“A lot of serviced apartments are very corporate, but now there are more places that are well designed, well thought out.”

Smit added: “It’s an interesting category, the model is a hybrid between residential and hotels. What we are trying to do at Yays is not just a hotel room with a kitchen in it and we think that it should feel like a home.”

The company’s most-recent deal saw it sign a long-term lease agreement for 53 serviced apartments at the Koninginnegracht in The Hague. The former office building, near Malieveld, will be renovated and converted into a Yays aparthotel and was due to open in the fourth-quarter of this year.

The signing of Yays Koninginnegracht Yays took the group to seven properties in five different cities across Europe.


The segment has attracted the traditional hotel operators, with Choice Hotels International launched a new extended stay brand, Everhome, in January.

Anna Scozzafava, VP, brand strategy and operations, extended stay at Choice Hotels, said: “The demand for hotel stays of seven-plus nights is nearly 20% of all room nights sold, yet only 9% of the supply is in the extended-stay segment, according to data from The Highland Group and Kalibri Labs. Everhome Suites sets out to capture this unmet demand with fresh, modern hotels that satisfy value-conscious consumer preferences for longer-term stays.”

Smit said: “There’s always competition from the bigger brands. The difference between what we do and what the big brands do is that we think of it as an apartment and not a hotel room, somewhere to explore and have experiences.

 

Insight: If you’re looking for a sliver of brightness in this most trying of times, then hurry over to serviced apartments and extended stay, because that’s certainly where all the investors are going and  they are jangling their sacks of cash.

The longer-stay options could well be this season’s hostels, given that the concept of the traditional hostel model is something of a stomach churner in the current environment. Like hostels, which were properly shaken up by the arrival of Generator, there has been a shift in what serviced apartments mean.

They are now, as Smits and Caseiras note, places where you might actually want to live, as opposed to somewhere you find yourself heating up a Pot Noodle after a busy day opening up a new office in the boonies. It is this response to customer need which is likely to be aped by the traditional hotel sector once it notices what is happening out there, even if they don’t go for the full kitchen.