In February 2024, the European Parliament passed a new regulation imposing data-sharing obligations on short-term rental platforms. New obligations, including the mandatory removal of illegal advertisements, are expected to help local governments enforce existing regulations.
Various cities worldwide have implemented regulations to address concerns related to short-term rentals, aiming to strike a balance between tourism and housing availability and affordability. A further goal is to protect travellers from illegal and unsafe accommodation.
Some cities limit the number of days a property can be rented out, require permits, or restrict certain types of properties from being used as short-term rentals. High profile examples include New York City (Local Law 18), San Francisco, Barcelona, Berlin, and Amsterdam. Each of these cities has its own set of rules and enforcement mechanisms.
Welcoming the new regulation, Femke Halsema, mayor of Amsterdam, said: “We hope the new regulation will close the long chapter of litigations in which our local rules have been disputed by online platforms.”
What impact do these regulations have on the branded serviced apartment market? Hannibal DuMont Schütte, co-founder, STAYERY, commented: “For us, it's been quite beneficial because in Germany what it does is it regulates the unregulated market, right? You have a lot of resi buildings that are now rented out for commercial purposes. And if they put a stop to it, that really drives the demand to us. I think it should be done that way because you cannot afford an ordinary flat in Berlin anymore. As somebody who actually earns a good amount of money and you end up living in a furnished apartment for €2,500 a month, that's not how it should be, right? So I do understand the idea of regulating it.”
Hakan Kodal, chairman, Ando Living, agreed: “Every government in the future will make sure that individual apartments, non-regulated, unlicensed in residential buildings will not be operational. And I totally agree that it inflates the rental prices in residential areas, people start complaining to have someone different entering every day. So politically, there's a pressure plus, of course, lobbying. I think more brands and more good players coming into the market will be better for us because it'll become a real industry recognised by investors. We're also advising in certain countries how regulations should be drafted.”
Under UK planning law, serviced apartments are described as commercially registered businesses that combine elements of residential use and hotel-like services. Classification depends on the length of stay; less than 90 days is considered a hotel use and more than 90 days is residential use.
Daniel Johansson, director of development and acquisitions, Cheval Collection, commented: “Obviously when you're looking at projects, you're going to need to be careful to see what use class you're going to get. C1 is typically given to hotels and then ‘sui generis’ for serviced apartments where you have flexibility.”
Johansson questioned the ability to enforce such regulations: “Who is going to inspect all these properties? There isn't the capacity, at least in the UK, for there to be checks on every single property. Have you only used 90 individual nights or have you used 92? I think there can be a lot of misuse of that.”
Kodal added: “What worries me is this is painful in every country. We don't have a harmonized business, like hotels, where you can scale up easily. We are dealing with different bureaucracy. Sometimes it's not easy to get licensing in the UK or for Lisbon tourist apartments, and Istanbul is something else. So these political changes slow down our expansion. But, of course, that's also an entry barrier for new operators. So, we'll have some progress and then the market will boost one day.”
Indeed, the expansion of the branded serviced apartment market and its market share vis a vis hotels is expected to increase.
Summing up the opportunities ahead, Lauren Okada Young, managing director, Brookfield Asset Management, said: “We've been investing in this space since 2018 and I think one of the key reasons we found this sector attractive was because of the high EBITDA margins versus traditional hotels. We saw an opportunity similar to what we've done in the student housing space, for example, to invest in something that was a bit nascent in the hope that it becomes more institutional and with that institutional demand you start to see pretty sharp valuations and yields.”
To build both customer and general consumer awareness of the serviced apartment product, Limin Lou, director of investment and asset management, The Ascott Limited, said that it was using AI to customise its marketing strategy.
All of the above quotes were taken from the IHIF Berlin 2024 panel: ‘Reassessing Serviced Apartments Opportunities in a Rebalanced Risk Landscape ’