The market share of aparthotels and serviced apartments is set to increase on the back of strong post-pandemic performance. Despite higher development costs, no slowdown in pipeline growth is expected.
Lewis Corby, senior director, CBRE, said: “We’ve seen big growth in this space, particularly in the last few years. We have seen serviced apartments compete directly with traditional hotels on acquiring sites, operator selections, and, even more recently, we've seen a lot of hotels convert to serviced apartments.”
Compared to Asia and the US, serviced apartments are still a relatively small proportion of UK and European hospitality real estate, pointing to the opportunity for further growth, he added.
Underlining the recent strong performance of the sector, Simon Walford, development director UK, Staycity Aparthotels, said group EBITDA had increased from €9 million in 2019 to €30 million last year. Staycity is on target to reach €230 million turnover and €45 million EBITDA in 2023.
Daniel Johansson, director of development and acquisitions, Cheval Collection, said: “2022 was our best year ever, beating 2019. And so, we budgeted very strongly for 2023 and perhaps a little bit too optimistic in some of the properties. But when you look at the results, when you're still outperforming 2022 in revenue and keeping up with costs, I think it's great.”
Johansson noted a welcome return of the Chinese market this summer, with one quarter of Cheval’s London guests arriving from China.In 2018, Brookfield, purchased the Edyn portfolio of serviced apartments for £209 million which consists of three brands: Locke, Cove and SACO. Andrea Colasanti, vice president, Brookfield, said that since 2019, RevPAR growth was up by 30 percent.
How are deals getting done in today’s tough business environment? For new builds, Walford explained what has changed: “To sign an AFL with a developer who may own the site but has no funding is very challenging. That’s what we’ve traditionally done, but it’s hard now because there’s no way to put a yield on it, and if you can’t do the maths it doesn’t work. So we’re working with a lot of local authorities on income strips and government funding, quite successfully. It’s not as quick, but we’re still aiming to open 2,000 units a year.”
Conversions of office buildings, retail, and hotels are prevalent. Johanssen said: “We do have a new build in Glasgow but it’s typically conversions we’re looking at and significant refurbishments. It’s lovely to get into new builds, but they take longer to get to market.”
John Angus, managing director, Switch Hospitality Management, said: “You can purchase an existing hotel for probably 40 percent less than a new build currently. We’re working with quite a lot of developers and funders on a dual model: essentially a hotel and an aparthotel in the same building. It creates a real opportunity to play in two markets with one team servicing both.”
Switch has several dual projects underway in Middlesbrough, the south and the Midlands, and the group will open a 161-key aparthotel in Birmingham this November under its own brand, Angus said.
Johansson said that Cheval Collection was considering enlarging its development team and creating a loyalty scheme: “It's not that we need it for our portfolio as it is today, but it’s future proofing for markets where we may not have the same kind of reach. So it's putting something in place that can enable us to grow throughout the world.”
Serviced apartment and aparthotel investors remain optimistic of expansion opportunities, although higher development and operating costs will tend to favour projects in major gateway cities.
“We know that at some point the funding market will come back. And when it does, wherever the tone is set for yield, that's fine. We will know where we stand,” said Walford. “Because of the higher costs involved there will be more focus on the primary markets and the strong markets, which is what we look at anyway. But I think it'll exaggerate that effect.”
Staycity currently operates 32 aparthotels and further properties are scheduled to open in Amsterdam, Cambridge, Munich, Lisbon and Porto. The company has also purchased sites in Stratford, London; and Nuremburg.
Edyn is completing new developments in Lisbon, Zurich, Copenhagen, and Paris due to open in 2023 and 2024.
All the above quotes were taken from the Annual Hotel Conference 2023 panel: Longevity in Long-Stay: Managing the Next Stage of Growth in Serviced Apartments