Serviced apartments: cashing in on this booming property trend in Europe
Tourists and business travelers around the globe are foregoing traditional hotel reservations and flocking to serviced apartments.
This is due largely to the fact that serviced apartments offer visitors the best of both worlds: Their range of
Overseas property broker Tranio has rounded up resources and advice for investors interested in cashing in on this growing trend, with an emphasis on the European market.
The serviced apartment industry in numbers
Between 2008 and 2016, the global volume of serviced apartments doubled, swelling to nearly 827,000 units worldwide, according to the
With a combined total of more than 450,000 units, North and South America account for more than half of the world’s serviced apartments, according to GSAIR, which was produced by The Apartment Service, Europe’s largest serviced apartment booking agency, in association with several other top industry players.
The European market is ripe for development and expanding rapidly. At present, some 114,000 serviced apartments are estimated to be located across 1,889 European locales. This figure represents a surge of more than 250% since 2008, but pales in comparison with the continent’s tourism rate; according to GSAIR, Europe welcomed 593 million travelers in 2015.
While serviced apartments can be found across the continent, key regional players include Germany and the United Kingdom.
Germany presently boasts some 23,000 serviced apartment units, largely concentrated in Berlin, Frankfurt and Munich, according to GSAIR. Another 5,500 units are expected to enter the market by 2020.
The United Kingdom is home to about 19,000 serviced apartment units, and is on track to experience exponential growth, global real estate firm Savills wrote in an industry research report released in late 2015: “The extended stay sector in the UK, including serviced apartments and
A closer look at serviced apartments and their appeal to guests
Serviced apartments are often touted as a more spacious and homey alternative to traditional hotel rooms. These fully furnished flats tend to include kitchens and lounge areas in addition to the bedrooms and bathrooms typically included in hotel rooms.
Amenities vary broadly. Some serviced apartments are practically on par with hotels, offering
Most, however, offer convenient booking methods comparable to those offered by hotels.
Serviced apartments tend to appeal to busy professionals who long for a sense of home while traveling for work, as well as to tourists eager to live like a local in their vacation destinations.
The term “serviced apartments” is often interpreted liberally so as to include corporate housing and
|Housing type||Services and infrastructure||Typical lease term||Operating expenses|
|Apartments in blocks of flats||Not included||Short and
|Hotels||Hotel suites||24/7 reception, cafe (bar), daily cleaning||From one night to several weeks||High|
|Reception, daily or weekly cleaning, laundry||Average|
|Corporate housing||Housing resembling traditional flats, occupying entire blocks of flats or portions thereof||Concierge, weekly cleaning, sometimes a fitness center||30 days or more||Average|
|Apartment hotels (condominium hotels)||24/7 reception, cafe (bar), daily or weekly cleaning||Average|
|Serviced apartments||Housing resembling traditional flats, occupying entire blocks of flats or portions thereof||Concierge, reception, daily or weekly cleaning||From one night to several months||Average|
In addition to providing a home away from home, spaciousness and flexibility, serviced apartments can prove to be
Serviced apartment costs vary broadly across Europe. For example, according to GSAIR, a serviced studio apartment in Moscow costs approximately €83 per night. Equivalent options would go for €145 per night in Amsterdam, €190 per night in Paris and €245 per night in London.
|Nightly rental rate
for up to six days,
|Monthly rental rate
for one to two months,
Serviced apartment management
Serviced apartments are typically managed by operators.
The global serviced apartment market is concentrated, with the top 15 operators accounting for 60.7% of serviced apartments worldwide, according to GSAIR. In Europe, the top 10 operators account for nearly 60,000 of the continent’s approximately 114,000 serviced apartment units. However, according to GSAIR, top operators are facing increased competition from independent brands, as well as hybrids (operators that provide agency services) and agency startups.
|Operator||Amount of managed
|1||Pierre & Vacances||20,020|
|3||ResidHome + Séjours et Affaires||5,233|
|4||Park & Suites||4,937|
According to DLA Piper: “A number of private equity investors have entered the market energetically, injecting capital into their chosen independent brands directly. This has allowed some of the newer independent brands to own and operate their own assets, expanding their brand profile through site acquisitions in key cities across the UK and Europe.”
Operators often lease serviced apartment units from their owners on a short or long term basis. They then provide a broad range of physical services in relation to the properties, including
According to DLA Piper, the sale and leaseback structure is popular among serviced apartment investors as it provides them with reliable legal title to their serviced apartment units, and with stable income over a fixed period (the course of the lease period), while also protecting them from operating loss risks.
This structure leaves operators with
Operators can be branded or independent. According to GSAIR, branded operators are currently flourishing in Europe: “The biggest shift of the last five years has been the supply of branded
As an alternative to the traditional
Weighing the pros and cons of serviced apartments
Many operators lure investors in with promises of guaranteed income, high yields and
“One of the keys to [the industry’s] success is being able to generate a higher gross operating profit and net operating income than the average hotel,” global hospitality service firm HVS explained in a 2013 report on the European serviced apartment market. “This is achieved through lower guest turnover because the length of stay is longer than that of normal hotels and lower operational costs achieved by providing fewer and less frequent services.”
According to the HVS report, this structure makes shared apartments highly attractive to both investors and operators.
However, investors are advised to bear in mind the significant risks that come along with this type of property investment.
“While companies selling these apartments often offer rental guarantees, investors need to ensure that the guarantee will stand up if things don’t go as expected, especially on
“Like any property, location, price and what the market is looking for is the first rule of due diligence. You need to know exactly how long the lease runs for, and the terms of the lease are also very important,” said Bieg, of Club Financial Services, in the interview.
Bieg went on to advise investors to carefully review the terms of any guaranteed returns, and to make sure that such guarantees were “after costs;” otherwise, your guaranteed return could be reduced significantly for maintenance and management fees.
Michael Yardney’s Property Update, an Australian investment website, similarly advises investors to consider the length of any guaranteed returns: “If it is only
Property Update further warns investors that the accommodation industry is highly cyclical, and can easily be impacted by a broad range of external events, such as terrorist attacks or airline strikes.
GSAIR echoes this point: “Although there are still lots of opportunities for growth, there are threats too. If global tourism is hit by terrorism or economic uncertainty, the serviced apartment sector will be effected.”
Furthermore, the growth of the serviced apartment industry exposes serviced apartment owners and operators to the risks associated with increased competition. According to GSAIR, 42% of operators worldwide view increased competition as the leading challenges facing their businesses.
To remain as competitive as possible despite increased competition and other risks, Vangelis Porikis,
Investors and operators are encouraged to keep their fingers on the pulse of this developing industry in order to court potential clients. Examples of what industry players can do to maximize the attractiveness of their offerings include:
- Flexible lease terms: By providing short- and
long-termrental options, and substantially differentiating between these options, operators and owners can increase the attractiveness of their shared apartments among an increasingly diverse range of potential clients.
- Format upgrades: Likewise, by offering a range of different formats — from humble studios for solo travellers
to multiple-bedroomapartments for large families — operators and owners can attract clients with a broad range of budgetary and logistical needs.
- Monitor hospitality industry trends: Industry actors are encouraged to keep an eye on emerging trends in order to provide your clients with cutting edge services. One key trend at the moment is that of bleisure, the combination of business and leisure travel. To accommodate the growing number of bleisure travelers, operators and owners could connect their corporate guests with local sightseeing tour operators at special rates.
- Monitor serviced apartment industry trends: Industry actors would likewise do well to keep an eye on their closest competitors.
- Closely monitor
internet-basedfeedback: According to GSAIR, 79% of consumers now value online reviews as on par with personal recommendations, and 80% of travelers use the internet to plan their trips. Accordingly, online reviews can have a direct correlation with revenue-per-available-roomrates.
Yulia Kozhevnikova, Tranio.com