The Rise and Rise of Serviced Apartments
Paul Rands MRICS, Managing Director - Future of Hospitality Institute
What is a serviced apartment? Last year the Association of Serviced Apartment Providers in the UK released an updated definition, “Often described as ‘home away from home,’ serviced apartments can be defined as self-contained accommodation units that offer an array of hotel-like services such as regular housekeeping and flexible lease terms.”
I offer an alternative, shorter version that it is ‘beds with kitchens’ and so facilitating longer lengths of stay.
How it was
When I first started working in the serviced apartment sector over 12 years ago, it was still a relatively unknown and misunderstood accommodation solution both amongst consumers and investors, despite the first serviced apartments having emerged in the United States as far back as the 1960s.
For a long time, a serviced apartment’s target market was the domain of corporate travelers seeking a solution for medium to long stay relocation or project work (the company I worked for had 90% corporate business).
Operators started out as either entrepreneurial solution fixers matching accommodation to a specific (mostly corporate) demand, hotel company extended stay brands or boutique real estate developers looking to maximise income from their asset. There were very few ‘hospitality style’ brands and even fewer multi-national operators.
The product was, and still is, a mixture of whole buildings, sometimes with front desks that operated like a hotel, and portfolios of individual apartments in traditional residential buildings serviced by a centrally based team in a ‘hub and spoke’ model.
The present
Fast forward to today and we can see a very different industry that is better understood, and increasingly attractive to both consumers and investors. Over the last decade the serviced apartment sector has rapidly developed internationally with the creation and development of hospitality brands by professional operating companies and new entrepreneurial businesses. More recently expansion has happened at pace facilitated and powered by innovative technology.
During the pandemic, serviced apartments were able to stay open when hotels couldn’t, and this improved consumer awareness helped to highlight the benefits of serviced apartments as an accommodation solution, such as more space and independence than a hotel. This resilience in a global crisis providing consistency, reliability and safety proved attractive to guests and the existence of strong business fundamentals has attracted investors both from an operating platform and real estate perspective.
The target audience has evolved too, helped in part by the emergence of Airbnb bringing the ‘apartment as an alternative accommodation solution’ to the wider public psyche. Of course, not all Airbnb is serviced apartments in the truest sense, but it has provided the platform for new operators to develop and establish their product offering to a wider, predominantly leisure driven, demand base.
Average lengths of stay will depend on the particularities of a location, for example London has tended to be an outlier in longer stays, but serviced apartments will always offer the solution for stays of 30+ nights if in reality the sector (anecdotally) typically achieves stays of 3-7 nights on average.
The traditional blurring of the lines between hotel and residential has continued within the sector itself between serviced apartments and aparthotel, with some operators, like Edyn, developing aparthotel brands to provide the point of difference within their own service offering. The evolution of service offerings in serviced apartments will be a trend to watch, whether that be in amenity spaces like coworking, communal ‘hang out’ spaces and wellness or in food and beverage. The sector has historically prided itself on an operationally efficient footprint which often translates to limited service and lower staffing levels and hence lower operating costs. Any increased footprint and services could challenge this.
The impact of technology
Of course, none of this matters if it is not easy to book, and that is possibly where the greatest transformation has taken place in offering real time booking, either through connection to third party platforms like Airbnb and Booking.com or direct booking on the operator’s website, previously cost prohibitive but now democratised by companies offering cloud based third party PMS.
The post-pandemic era has seen the emergence of technology-led operators in Europe, who can open new markets quickly and with limited in-country staffing, and so able to expand at a rate not previously seen in the sector.
This tech focus is also meeting the demands of an increasingly tech-savvy customer demographic, and with multiple locations in multiple countries one or all of these operators could become the first serviced apartment brand to ‘break through’ to the mainstream and be recognised by consumers in a way that hotel brands have for decades. This can only be a good thing for the sector as a whole, particularly as it starts to lose the ‘alternative’ and ‘niche’ monikers.
Regulation
If a threat to the sector exists it is most likely in building licensing/planning consents. There hasn’t been great headway made with municipalities in establishing a universal licensing category as we see for other asset classes, and in some cities such as London, Paris and New York, there remain tight restrictions on minimum lengths of stay for residential buildings. Operators and developers have been more agile in reacting to the changing needs of travelers and residents than the regulators constrained by out-of-date ideas of the needs of their city, and solutions have been found, often using a hotel, residence du tourisme or boarding house license depending on the jurisdiction.
‘Short stay rental’ licenses are starting to emerge, so I remain optimistic about continued organic growth.
The future
This is still a largely fragmented sector. There have been recent examples of M&A activity, predominantly to drive growth into new markets, but I expect to see further consolidation led by the larger operators and hotel groups seeking to strengthen their extended stay offerings.
With an evolving demand including corporate business travel requiring fewer trips but longer stays, the emergence of independent business travel where people take advantage of more flexible working arrangements, and experience-based leisure travel, serviced apartments are ideally placed to continue to thrive. Add accessibility of booking opening up a wider audience, and it makes serviced apartments a credible option to compete in the shorter stay segment with hotels. Underpin that with longer stays helping to deliver strong occupancy levels and overall, the future looks very bright for serviced apartments.
And as for my favourite serviced apartment?
The Kings Wardrobe in London. It is a truly unique building with unusually large apartments, well refurbished by current operator Native Places (NUMA), in an outstanding location just a ‘stones throw’ from St Paul’s Cathedral. Worth a stay if you are in London, as long as you don’t mind the bells!
Paul was previously Vice President International Development and member of the Executive Leadership Team at BridgeStreet Global Hospitality, US headquartered it was a leading global serviced apartment operator and solution provider.
Future of Hospitality Institute: Shaping the Future of Serviced Living
Future Living, a research project by the Future of Hospitality Institute, aims to identify emerging trends in accommodation demand and the new ways of living. In doing so, it considers innovations that will positively impact serviced living concepts – from student accommodation to senior residences – which are best placed to provide solutions for this fast-changing demand.
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