The group was made up of around 20 people, including investors, hoteliers, lawyers, consultants, operators, brokers, recruitment companies and media. Most were from the UK but there were also people present from the US, Finland, Germany, Russia and the Netherlands. Several of the attendees were from a hotel background and had noticed the increased exposure and buzz surrounding serviced apartments, and were keen to learn more.
Piers Brown gave a round up of some recent transactions in the sector to kick the session off.
Richard Dawes, associate director of Savills said he thinks the real growth in the sector has only just begun, while Jeremy Jones of Christie & Co said: “The transaction landscape is changing. There is huge interest in the sector.” Jones is selling the Staybridge Suites asset in newcastle and said there had been a lot of interest in the property from Middle Eastern and European investors. “The fewer moving parts a hotel has, the more the interest,” said Jones.
Dawes added: “Institutional money coming in to the sector has been the game changer, prompted by yield compression in the budget hotel and office markets. The potential to convert serviced apartments back to residential use is a big attraction to institutional investors. Private equity involvement has also been a big development. The sector offers great margins and an attractive and sustainable business model.”
One of the things preventing further investment is the lack of performance data, said Jones: “Now there is more interest in the sector, consultants want to know them metrics but there is not much data available.” BridgeStreet’s Sean Worker agreed, saying: “Transparency of data is crucial, credible data which enables investors to make decisions.”
Jones added that consumer awareness is gradually increasing too: “Consumers like serviced apartments when they actually get to stay in one.” Piers Brown added that the way serviced apartments are marketed on OTAs can be confusing to the consumer.
Frédérique Raveau, VP business development for Ascott, then gave a brief overview of her company’s strategy: “We are concentrating on key capital cities, and will look at acquiring serviced apartmets, office buildings for conversion and also hotels for conversion. We also have a REIT which is a pure real estate play – we don’t always operate these assets, for example we lease one of our buildings in Hamburg to a third party. We like the mixed-use model, it can be a good solution in some markets to have serviced apartments and hotels together.”
Picking up on this theme, Richard Dawes said: “Mixed-use can work well in big cities but you need to make sure the brands are compatible and don’t dilute each other. I think we’re going to see more that model.” It was pointed out that a mix of extended stay accommodation and co-working space is a potentially good mix for mixed-use developments, a blend that Sean Work said can take out some of the cyclical nature of the serviced apartment sector.
The thorny topic of planning inevitably came to the forefront of discussions, particularly the distinction in London between C1 (hotels) and C3 (residential) planning approval. Richard Dawes said: “UK planning is very opaque, but lots of local authorities are going to get stricter.” Jeremy Jones pointed out that in London there are several operators trading on the “grey side” of the planning laws.
Recruitment consultant Peter Malone then said that the serviced apartment sector has traditionally been a much more difficult sell for a recruitment company, but that perception is changing over time. “Two years ago there wasn’t even a talent pool to choose from,” said Malone. “Now there is more to choose from, it’s a recognisable sector now.”
On the subject of funding, Katten Law‘s Terry Green said that banks are not always keen to get involved with the sector because they don’t fully understand the market. Dawes added: “More High Street banks are getting involved and that is where the growth is lending will come from. In that respect, having a recognisable brand over the door is a big help.”
Sean Worker explained that BridgeStreet’s main challenge is maintaining supply and demand. On the demand side, the company has strengthened its sales force, particularly to target corporate clients and travel managers. On the supply side, it is regularly speaking to investors, explaining the benefits of investing in the sector.</p
