Michael McCartan, area VP EMEA at IDeaS, comments on the projected growth of serviced apartments and aparthotels.
The pandemic housing market saw buyers flock to larger homes that could offer refuge and stability at home as well as space for a home office. As a direct result of the shutdown and a lingering fear of gathering in crowded spaces, the hotel industry took a significant revenue hit, with European markets seeing as much as a 70 per cent drop in their revenue per available room (RevPAR). While pandemic-era restrictions are now lifted, there is still a lingering desire to get out and travel, especially for “digital nomad” workers who have increased flexibility in where they work.
With that change in behaviour, the hospitality industry has adapted by offering services that will appeal to the needs of these combined “business and leisure” hotel guests who are seeking opportunities to maximise their business travel opportunities with longer stays.
What’s driving the push for extended stay accommodations?
There are two substantial market demand disruptions that are driving accommodation providers to cater to extended stay guests:
• Restrictions on Airbnb favour hotel extended stay market: In a bid to free up real estate inventory for traditional long-term renters, Airbnb has been the target of legislation in major local economies like Paris, London, and NYC, with recently passed restrictions so severe that many considered them a “de facto ban” on the Airbnb model. Aparthotels or other extended-stay accommodation models are better equipped to comply with the new restrictions placed on Airbnb while still being able to deliver the local “home base” experience travellers have grown accustomed to.
• Shifting attitudes toward remote work and business trips: Even as 90 per cent of companies plan a return to the office by the end of 2024, there are many who concede that this will be at the expense of the five-day workweek and that hybrid remote work options will likely remain. These efforts to reduce the role of remote work in the workplace will not eliminate the benefit entirely and will likely continue to impact the serviced apartment sector in some capacity for the foreseeable future as these workers continue to drive the extended stay market.
With remote work a lasting, widely available option for business travellers, we’re seeing a substantial change in this segment’s behaviour. Workers are increasingly looking for ways to combine work with leisure travel by extending their visit, which ultimately benefits the long-term stay sector. While business trips tend to be taken less often, the duration is noticeably longer—business trips lasting seven to 14 nights have doubled from 2019 to 2021, according to the Global Serviced Apartment Industry Report. For travellers who plan to work while travelling have indicated they intend to take twice as many trips.
Why extended stay is here to stay
The changes brought on by this guest behaviour shift appear likely to stick around—and for good reason. For one, serviced apartments offer flexibility for hoteliers. Extended stay options at hotels and serviced apartments are able to combine the desire for flexible living options with the services that people are looking for. This shows in COVID-era results. In the London market, RevPAR for serviced apartments only fell by 17.9 per cent from pre-pandemic levels compared to regular hotels, which saw their RevPAR drop by 40.5 per cent. This reflects the resiliency of the serviced apartment sector, which has helped expedite their recovery.
The serviced apartment sector has continued to excel even after the pandemic because it is a model that can accommodate a wide range of demand from short to long stays. This is true not just for Europe, but in the US and Asia as well, where remote workers continue to shape living situations and services to accommodate them.
Another factor that’s keeping extended stay plays in the long-term picture for accommodations providers is the help they provide in resource management.
The pandemic caused a substantial shift in the job market. Hospitality markets have universally shared struggles attracting and retaining their staff, but the UK has particularly struggled with restaffing after Brexit as a significant portion of their workforce is comprised of international workers.
While this presents substantial challenges, properties have adapted by running on a lean staffing model and cutting back on services like cleaning, laundry, or spa amenities to reduce overhead costs. Longer stays fit well for this approach as there are fewer rooms to turn over.
So what does that mean for extended stay properties in the near term? Growth.
Inventory for serviced apartments is set to grow by 21.2 per cent over the next three years in Europe, according to a 2022 Savills report. The same report highlights that investors may be focused on larger markets in Paris, Amsterdam, and London but analysts believe there will be opportunities in smaller cities and secondary markets since they are equipped to provide a balance between business and leisure.
The aparthotel market has matured in Europe in the last few years and is no longer considered a fringe investment—making it a more attractive to institutional investors. London is the biggest market overall, with the largest company being Adagio Aparthotels, which was originally mostly focused in the UK, but has since expanded to an additional eight countries with new openings due in Berlin, Zurich, and Paris by 2024. Savills predicts another 500 units will be added in Istanbul, Manchester, Belfast, Glasgow, Dublin, and Frankfurt as well.
New approach, new challenges, new tools
While diversifying their revenue streams with the inclusion of extended-stay offerings can certainly help accommodations providers meet the needs of the market, there are some revenue management challenges that come with this added layer of complexity.
For properties that cater to both extended stay and standard overnight guests, dynamic pricing efforts need to consider the holistic impact of their rates—an ultimately higher-value extended stay guest shouldn’t be turned away or priced out in favour of an attempt to yield more from the room on a single high-demand night. That’s easy to say, but in practice this approach gets very complex without the help of an advanced automated revenue management system that can account for the variety of product types offered at a property.
Serviced apartments, apartment hotels and extended stay accommodations represent a growing segment within the hospitality industry—and revenue management tools and practices need to adapt and grow with it. When it all comes together, hoteliers with a stake in these flexible accommodations can take their property to new revenue heights.
