The 2015 Assocation of Serviced Apartment Providers annual convention began in buoyant mood, with the positive atmosphere among delegates reflecting the news announced by ASAP and Savills that the UK serviced apartment sector is set to double in size over the next two years.
The conference was opened by Sally Balcombe, CEO of VisitBritain. She reported that 2013 and 2014 were record years in terms of inbound visitors to Britain and 2015 is expected to be the same – and stressed that there is a real need for more beds to accommodate these guests.
VisitBritain’s core grant funding was uncut in the government’s recent Spending Review, said Balcombe, and extra funding has been added. A recent example of how this money is spent is a £1.6 million marketing campaign in China, which was seen by 350 million people – the Chinese are the second biggest spenders per head in the UK after the Kuwaitis, said Balcombe.
She went on to stress that serviced apartments represent better value for money than many alternatives, with currency pressure currently working against the UK this is vital. Certain markets travel as families – Gulf visitors for example, so serviced apartments are ideal for them. Balcombe said there is a big opportunity for VisitBritain and the serviced apartment sector to work together.
James Foice, ASAP managing director, then gave an update on the association and its initiatives. Membership has reached 130 companies, representing 100,000 apartments. The extended stay sector is the fastest growing area of the UK’s hospitality sector said Foice, who added that 2016 will see an ASAP white paper on challenges for the sector, and an employment initiative with the Springboard charity, encouraging apprenticeships in the sector.
James Bradley of Savills said that the current UK supply of serviced apartments is 19,123 units (3.1 per cent of all hospitality sector stock), and that this is set to double over next the two years. 2014 and 2015 were record years for new stock, and 2016 and 2017 are expected to be the same, said Bradley, noting that the potential total demand for serviced apartments in London is 21,306 units – existing and committed stock is just 11, 683 units, leaving a gap in supply of nearly 10,000 units.
Elizabeth Winkle of STR Global gave some serviced apartment performance data, and highlighted the strong performance of UK regional cities. Average occupancy in UK cities was above 83 per cent in 2015, she said.
A panel on investment featured Stephen Welch of Santander Corporate Banking, who stressed that lending to existing serviced apartment projects is based on cash flow and trading performance rather than loan-to-value (LTV). For development finance, 50 per cent LTV is the norm – a “chunky equity cheque” is required.
Stephen Hanton of SACO said the flexibility of the serviced apartment model is a comfort to investors but stressed the difficulty of finding sites in London “as you are bidding against resi and commercial developers”. Even in secondary locations such as Reading it is getting difficult, said Hanton.
Felicity Jones of Watson Farley Williams noted that investors from the Far East are buying hotels and residential property in markets such as Spain and Germany, and converting them to serviced apartments.
Asked to summarise what is in store for the sector over the next few years, Jones predicted that franchising will grow in the industry, Hanton said apart-hotels “are the future” and that the industry needs to reinvent its product.
Jan Jacobsen of AIG, speaking on the buyers panel, said the serviced apartment sector is very good at talking to each other, but not so good at talking to the people who want to use its services. There is an opportunity for more consortia and soft brands in the sector, he added. Jason Parry of Brookfield Global Relocation Services, said that consistency of service is the key for his relocation clients.
In the last session of the day, Ufi Ibrahim, CEO of the British Hospitality Association, spoke about cutting VAT on travel and tourism; skills and recruitment; and the issue of rate parity with OTAs. “Price parity clauses are absurd,” she said. “They are banned in Germany and France, and will soon be banned in Italy. We believe we will see them banned in the UK within 12 months.”
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