Serviced apartments and aparthotels proved their worth during the lockdown, offering self-contained, safe and secure accommodation, according to a study by Knight Frank.
The group said that investors were likely to show strong appetite for the sector, viewing it as a defensive asset class alongside build-to-rent, healthcare, senior living and the private-rental-sector.
Philippa Goldstein, senior analyst, head of hotel research, Knight Frank, told us: “This global crisis has elevated the attractiveness of the extended stay sector to new heights. The pandemic reinforces the benefits and advantages of the sector, with specialist operators having the ability to quickly pivot their business mix to attract a far higher percentage of long-stay guests. Hotels, by contrast many have been forced to close during the lockdown and don’t have the same degree of versatility. The sector was able to show that it is a defensive asset class.
“The whole of the hospitality sector has suffered from demand shocks and the loss of transient business, but the serviced apartment sector has shown that it is able to become leaner and remain profitable.”
Commenting on whether this meant that the global operators now needed to have an extended stay offering, Goldstein said: “They are moving that way, but you can’t just have a kitchen in the room and call it extended stay. The serviced apartment operators have a lean business model which they can flex, importantly it is also about the whole co-living, co-working experience, with an emphasis on building long-term relationships.”
The study found that reports of what was described as “respectable” occupancy levels throughout the lockdown period were recorded by all operators, with occupancy levels typically averaging between 65% and 75%. A surge in trading, as a result of exceptionally strong staycation demand throughout the summer months, led to even greater trading performance. Assets in markets such as Stratford, York, Chester and Liverpool reported exceptionally strong occupancy levels, achieving occupancy between 85% and 95%.
With the mix of long-stay residents increasing, this had negatively impacted on the average rate achieved per apartment, resulting in a decline in revpar. The sector anticipated a possible revpar decline in the region of 35% to 40% for the full year 2020, compared to the previous year, but modest GOP is still anticipated.
The study said: “The sector has an opportunity to gain greater acceptance as an alternative proposition to that of a traditional hotel or indeed an Airbnb stay. In fact, certain operators, such as the Edyn Group, which operate the SACO brand and the design-led Locke aparthotels, has seen an increase in demand from the Airbnb distribution platform, as demand heightens for self-contained, spacious accommodation with the safety and security of a professional operator.
“Having a base of long-stay business and able to accommodate essential workers, meant that for a large number of operators, a significant number of properties were able to remain open during the lockdown. Despite the sudden and abrupt loss of transient business, the ability to continue to trade and flex the model, to attract a significantly greater proportion of long-stay guests, has allowed for fixed costs to be covered and to achieve break-even on GOP as a minimum.”
Where possible, operators were able to consolidate occupancy, freeing up inventory to capture new markets. On occasions, entire buildings, with C3 planning use, have been temporarily repurposed to the private rental sector, with strong demand for cheaper Assured Shorthold Tenancy contracts. Meanwhile, other properties have been partially or wholly used to house the homeless or individuals placed by local authorities during the lockdown period. Depending upon location, particularly in London, certain properties are still actively being contracted out on this basis.
Prior to the Covid-19 pandemic, the serviced apartment/aparthotel sector witnessed the largest year-on-year growth in supply of all UK serviced accommodation. In 2019 some 1,400 new apartments opened, representing supply growth of 5.8%, and prior to the outbreak of the pandemic equally strong growth in supply was planned for 2020. A strong pipeline of new supply, currently under development, was still anticipated to open.
In an era post Covid-19, as the sector continues to evolve and be driven by the consumer, the homestay holiday-let market served by the Airbnb model, was likely to become less competitive. Customers will increasingly undertake more due diligence in their choice of accommodation, seeking out self-contained, spacious accommodation provided by a specialist branded operator, which guarantees high standards of hygiene and cleanliness.
Asli Kutlucan, CDO, Cycas Hospitality, said: “We always believed and advocated that extended stay hotels have advantage during crisis, and this pandemic has fundamentally proven this point. Whilst all other accommodation types have endured closures, our extended stay hotels remained open, and most of them performed at or above breakeven level. Our extended stay pipeline of some 600 internationally branded suites, opening in Europe within the next six months, is testament to our long-term belief and commitment to this segment.”
Insight: Not every hotel operator may be capable of launching an extended stay brand - although if you have them, there’s nothing wrong with seeing if they might want to trade you a sack of gold for it - but every hotel operator has been looking with envy at their corporate clientele.
As the next six months continues to look uncertain, Goldstein pointed to new sources of corporate demand that serviced apartment operators are benefitting from, commenting: “Clients who choose to self-isolate or quarantine, temporary accommodation renewed on a monthly basis with no need for a chunky deposit or references, as well as new flexi-working patterns, all provide another base of business. Some of the core corporate business has been reduced, but other sources of corporate demand are out there”.
Coming in to the left of this is citizenM, with its corporate subscription. It may not be offering a kitchen in every room, but the company is looking at those who work away from headquarters, who come in for a few days to touch base and need a place to stay. There is the hope that changing work patterns will make this a permanent feature, providing more opportunity for serviced apartments and hotels which can move fast enough.