Overseas property
Articles
Article snippet
Tranio logo

Investment prospects for serviced apartments

Serviced apartments occupy a unique space between conventional rental residential properties and hotels – studios or one-bedroom apartments are typically 15-30% larger than hotel rooms. One of the main advantages such apartments have compared to hotel rooms is the availability of a kitchen. They are rented out for both short-term (1-3 days) and long-term stays (90 days to 12 months). These properties have fewer services compared to hotels (e.g. meals are not always included). Separate serviced apartment buildings are known as apartment hotels. These properties can have gyms and conference rooms as part of their facilities.

Market volume

According to UK-based consultancy the Apartment Service, between 2008 and 2016, the global volume of serviced apartments more than doubled, swelling to 827,000 units worldwide. European countries account for a quarter of them.

According to HVS, over 10,000 serviced apartments will be built in Europe between the middle of 2017 and 2020. 37% of them will be commissioned by late 2017, 28% in 2018 and 25% in 2019. Each building has 18 to 300 apartments, and 120 apartments on average. The UK and Germany have the highest supply volumes (41% and 32% respectively).

Country 2017 2018 2019 2020 Total
United Kingdom 1,556 1,460 768 495 4,279
Germany 1,248 655 1,034 405 3,342
Switzerland 291 148 300 739
Ireland 111 190 192 105 598
France 224 347 571
Austria 162 99 261
Netherlands 175 175
Other 80 275 355
Total 3,847 2,899 2,569 1,005 10,320
Source: HVS

Transaction values in the serviced apartment and apartment hotel market are often not disclosed, just like the information on buyers and sellers. In Europe, prices start from €100,000.

Company Business model Brand Presence Number (2016/2017)
of locations of units
Accor (France) Rental agreement, management agreement, franchising Adagio Europe, Brazil, United Arab Emirates, Qatar 110 12,000
Mercure Australia Australia 58 >6,000
The Sebel Australia, New Zealand 16 >1,600
Suite Novotel Australia, Asia, Middle East, Europe, North America, South America 33 >4,100
International Hotel Group (United States) Management agreement, franchising Candlewood Suites United States 341 >32,300
Staybridge Suites United States 220 >23,900
Frasers Hospitality (Singapore) Owner-operator Fraser Residence Asia, Europe, Middle East 13 >1,500
Fraser Suites Asia, Africa, Australia, Europe, Middle East 29 >5,000
Fraser Place Australia, Asia, Europe 16 >3,000
Capri Australia, Asia, Europe 8 >1,750
Modena Residence Asia 5 >1,100
Marriott (United States) Management agreement, franchising Residence Inn by Marriott United States, Canada, Europe, Middle East, Latin America 750 95,000
Marriott Executive Apartment Asia, Africa, Middle East, 25 >3,300
TownePlace Suites United States, Canada 278 >28,000
Pierre & Vacances (France) Rental agreement, management agreement Pierre & Vacances Europe 226 >20,000
Maeva France 31 >2,200
The Ascott Limited (Singapore) Owner-operator, management agreement Ascott The Residence Asia, Australia, United States, Brazil, Europe, Middle East >45 >8,000
Somerset Asia, Australia, United States, Brazil, Europe, Middle East >80 >15,000
Citadines Apart'Hotel Asia, Australia, United States, Brazil, Europe, Middle East >95 >15,000
Source: Hotel websites, the Apartment Service, Savills

Occupancy and yield rates

Rental rates for serviced apartments are often 15–30% lower compared to hotels. This is one of the reasons why more and more tourists and business representatives are choosing this type of accommodation.

Serviced apartments often have higher occupancy rates (84% in 2016, according to HVS) compared to hotel properties in general (70% in 2016, according to Statista).

In addition, apartments offer more money-making opportunities. For instance, according to JLL, hotels yield from 5–6.5% in the UK, while serviced apartments yield 6.5–9.0%. the higher yield is due to a risk premium because of issues related to brand awareness and insufficient product information. However, according to analysts, these obstacles will disappear in the future, and yields may fall to 4–5% (an intermediate level between conventional rental apartments and hotels).

The net guaranteed yields operators offer to the end investors are usually lower. For instance, Adagio, Pierre & Vacances and RésidHome apartments in France offer 4% per annum, after maintenance and management expenses (excl. VAT).

According to JLL, serviced apartment operating expenditures average 40% of revenue compared to 60% for hotels for two reasons: most apartment hotels do not offer breakfast and clean the rooms weekly, not daily like in hotels.

Long-term residential
rentals
Hotels Serviced
apartments
Operating
expenditures
(% of revenue)
20 60 40
Rental term (days) 365 1–2 1–365
Number of staff 1 administrator 1 staff
member
per room
1 staff
member per
5 apartments
Yield (%) 3–4 5–6.5 6.5–9.0
Source: JLL

Investment prospects

According to PwC's Emerging Trends in Real Estate: Europe 2017 annual survey, 39% of respondents deem the prospects for serviced apartment investments “good” while 29% deem them “very good”.

According to a survey by PwC, serviced apartments are among the top 10 investment property types in 2018.

Analysts from international property brokers Tranio believe this segment is promising for investment, especially in markets with a price growth potential. Tranio is converting a building in Athens, Greece into an apartment complex with a local developer, and will rent out units on short-term contracts by the mid-2018. Investors can purchase one or more apartments ranging from 35 m² to 85 m² at €3,000/m².

This is a promising opportunity for the following reasons:

  • Residential properties have low risks and time expenditures: a Greek property management company is in charge of the lease and maintenance of the apartments.
  • Each apartment has a rental license for short-term stays.
  • Investors can yields of up to 7% by leasing the apartments via Airbnb.
  • When investing at least €250,000, buyers and all their family members are provided with residence permits that can be extended remotely every five years. There is no requirement of stay for permanent residence in Greece.

Originally published on Globalrealestateexperts.com

Subscribe not to miss new articles

We will send you a content digest not more than once a week

Subscribe
    By subscribing you accept the User agreement

    Done!

    Tranio’s managers offer advice on buying real estate overseas
    Anna Boyarchukova
    Anna Boyarchukova
    Head of Residential Department
    +44 17 4822 0039
    Send a request
      When you submit a request, you agree to our terms and conditions
      • 0% commission to Tranio
      • Residence permit support
      • Mortgage rates from 1.5%
      Ask a question

      Ask a question

      Send a request
        When you submit a request, you agree to our terms and conditions