As hotel investors have looked outside the traditional structures to new, related operational real estate sectors, serviced apartments have arguably seen the biggest increase in interest, given their performance since the start of the Covid-19 pandemic. But what is the operational proposition and what comes next for the segment?
Savills’ 2022 European serviced apartment market report predicted the entry of more private equity vehicles, and sector-specific brands driving European expansion, despite the likes of Hyatt and Hilton looking to get a piece of the extended-stay pie. In 2022, 547 million nights were spent in beds booked through Airbnb, Booking.com, Tripadvisor or Expedia in the European Union.
“It is a massive space, but it’s a matter of consolidating it, professionalising it, building on that experience to give the customers a better product that reaches demand in the market. The next Hiltons and Marriotts [will be] coming out of this space,” says Niko Karstikko, co-founder and CEO of short-stay brand Bob W, which has 27 aparthotels and co-living properties across Europe and raised €21 million last year towards expansion.
Hakan Kodal, chairman of Ando Living, also stresses the potential – the serviced residence group operates five houses in Lisbon with plans to expand into cities in Portugal, Spain, Greece, Turkey and Dubai.
However, he says the challenge for the sector will be addressing concerns around standards as well as securing recognition and preference in a competitive market.
What’s in it for the guest?
Reaching this goal will of course start with guest satisfaction. Josef Vollmayr, co-founder and managing director of Limehome, says that serviced apartments meet the changing needs of the consumer post-pandemic.
“Work life has changed at a pace it has never changed before. People work in hybrid settings, from home, they work from basically everywhere, and quite often very far away from where the office of their employer is, and this of course has a major impact on travel,” he says.
“People stay way longer; we have less stays for one night only… and of course these patterns are way more pronounced among the younger generation.”
Sam Barrell, director of capital markets at CBRE, says that while pre-Covid, stays of longer than eight days made up 19 per cent of serviced apartment bookings, post-Covid it is closer to 39 per cent. At YAYS Group, CEO Zachary Schwartz says the average stay was roughly 3.5 days pre-pandemic and is now closer to five.
Karstikko agrees that “long gone are the days that you leave 5pm on a Friday for your weekend trip and come back Sunday night to make your 9am at the office. That flexibility is just bringing this whole array of different kinds of use cases that haven’t existed before, or have been very niche, into the broader market.”
He goes so far as to say the B2B hotel concept is “dead” and that whether a guest is travelling for business or leisure is now “irrelevant”.
“[Serviced apartments] are a more flexible proposition that is a better product market fit of what the customer wants in the modern age that has been unchained from the traditions of what a hotel or hospitality should look like,” he asserts.
Strength in agility
Serviced apartments’ ability to cater to a broad range of both short- and long-stay needs protected the sector during the pandemic – according to the Savills report, in December 2021, London serviced apartment revpar was 17.9 per cent below 2019 levels, compared to -40.5 per cent for hotels.
Vollmayr argues that this flexibility also applies to its expansion capabilities: “We can fit in different room categories, so there are much more assets we can actually look into,” he says.
Part of its flexibility is owed to the fact that sector-specific brands are younger and therefore smaller and more agile. This also means they have been able to build technology into their operations and subsequently build more staff-light models in a sector struggling with shortages. Bob W, for instance, has an AI chatbot concierge which Karstikko says has allowed the business to operate “four-star ADRs with one-star cost structure”, while Vollmayr says Limehome’s smaller size has enabled them to learn very quickly from customer feedback – and crucially, apply solutions quickly.
“We know for instance that X per cent of our calls or interactions are related to luggage storage, so we know we need to find a solution for luggage storage. Our interactions with our guests influence our development,” he says.
Limehome’s revenue management strategy also uses an algorithm to optimise its yield, with just one revenue manager overseeing 125 properties who Vollmayr says “basically just checks that the algorithm works”.
“It’s way easier to build a digital-first business than digitising an existing business,” he adds.
Is the future bright for the serviced apartment market?
With some countries imposing limits on short-term lets, professionalised brands may face less competition from ‘scattered stock’, with consolidation likely to play a role in the sector’s future. Meanwhile, increasing investor interest is what will drive growth, believes Schwartz – YAYS sold its 94-unit site in Antwerp to CBRE Investment Management last year.
“There are already players from private equity, family office, venture capital, long-term institutional capital,” he says. “[Serviced apartments] are mainstream now, investors really get it.”
Adds Karstikko: “The institutional investors have woken up to this space and there’s a wealth of opportunity and money to be made… It’s only a question of time.”
All those quoted in the article appeared on stage at the International Hospitality Investment Forum (IHIF) held in Berlin between May 15 and 17, in a session called: Thriving in the Booming Serviced Apartments Marketplace.