SAN editor George Sell looks at some of the key trends that will shape the global serviced apartment and aparthotel sector in 2020.
• I SHOULD CO CO
Co-living and co-working are two sectors which have very rapidly moved from being left-field products for a marketeer’s dream audience of trendy young urban professionals, to asset classes which are getting owners, developers and investors very excited indeed. Despite WeWork’s well publicised travails, innovative new co-working brands such as NeueHouse and Alley are forging ahead, and a host of mixed-use, multipurpose developments feature a co-working element – in fact it is almost obligatory now to feature co-working space in new lifestyle hotel and private members club projects.
Accor’s launch of the Wojo co-working brand, for which it has big plans, will see co-working spaces in many of its new hotel and aparthotel (including Adagio) projects, as well as standalone Wojo properties. And even independent aparthotel developments are benefiting from co-working space, such as the forthcoming The Gresham – an aparthotel conversion of the former Fenwick department store in Leicester. It will feature 12,000 square feet of local authority-funded co-working space in part of the ground floor and basement.
But it is co-living that has really got investors champing at the bit. JLL’s European Coliving Index reveals that there are now more than 23,150 co-living beds either built or in development across Europe. Some 53 per cent of current operating assets have more than 100 beds, but this is set to rise to 79 per cent when those in the planning stages are complete, and the average development size is expected to increase to more than 250 beds. The report says that Europe’s co-living stock is heavily concentrated in the continent’s capitals, with London, Amsterdam, Paris, Berlin, Dublin and Vienna leading the market. London and Amsterdam account for nearly 40 per cent of Europe’s overall co-living stock.
The UK is a particularly strong growth market, with London holding more than 20 per cent of the current European market, and Manchester, Glasgow and Birmingham also ranking in the top 20 co-living cities in Europe. With 85 per cent of the UK’s co-living assets still in the pipeline, the sector is set to experience healthy growth. “Co-living accommodation will play a leading role in future city structures and increasing institutional investment has established the sector as a competitive part of the broader property market,” said James Kingdom, an associate director at JLL responsible for alternative sectors research. “Going forward in Europe, growth will be particularly spurred by younger city demographics taking their first step on the property ladder – such as the fast-growing post-graduate and post-PBSA populations who are calling for more convenience and choice in housing.”
A pioneer in this market is The Collective, which has two properties open in London and one in New York – its latest project to receive planning, in London’s Borough High Street will be “a new cultural destination including a 14,000 square foot community and employment incubator that will include subsidised workspace and accelerator programmes to upskill local young people, community space available free of charge, and subsidised creative space for local artists”. The Collective has secured planning consent for four purpose-designed co-living schemes in London in 2019, as well as a further approval in Chicago.
• REMEMBER THE MEMBERS
Subscribing to services has become commonplace across all walks of life – most of us have a gym membership, a Netflix account or a Spotify subscription. The model provides customers with the product or service they want with the added convenience and predictability of a fixed price. It is also starting to catch on in the travel and hospitality worlds, with airlines leading the way. Voleris, which operates low-cost routes through Mexico, has recently launched V.Pass. For a monthly fee of US$20, subscribers get one flight a month, anywhere Voleris flies. Lufthansa is also trying out the idea with Flightpass, where consumers pay a set price and get a pass for 10 flights within six months, with special pricing and routes for students or business travellers.
This year, US destination club Inspirato introduced a subscription membership, separate from its original product. The Inspirato Pass costs US$2,500 a month. Members must sign up for a minimum of six months and can stay as often as they want at a wide range of hotels and holiday homes, as well as benefitting from travel planning and curated experiences.
The subscription model usually offers best value when it is used often, so products aimed at regular business travellers – such as serviced apartments – would make a lot of sense. The membership/subscription model is already being used in longer term residential rentals. US start-up Landing allows members to lease fully-furnished apartments in popular urban areas, including Austin, San Francisco, New York, Los Angeles and Birmingham. It is aimed at young, career-focused professionals who are likely to move cities frequently to pursue jobs or new experiences. Founder Bill Smith says: “Renting needs to change. The whole point of renting is to have freedom and flexibility and the way it is today, you don’t have flexibility, because you’re locked into a lease. You have to move all this furniture around and do all this work and you just want to focus on your job and your friends and living your life.”
Landing charges an annual membership of $199 and members can live in a one- to two-bedroom apartment for 30 days or longer. Amenities include housekeeping and concierge services. The company works with developers and property managers in each of its cities and expects to operate in 30 cities worldwide by 2021. How long before corporate housing providers and serviced apartment operators follow suit?
• KNOW YOUR REITs
Hotel REITs (real estate investment trusts) have proven to be a popular way to own and invest in hospitality assets. The 14 largest US hotel REITs have a combined value of around $55 billion, with one of the largest, Pebble brook Hotel Trust, owning 55 assets across the US. While several of the larger REITs have some limited exposure to the extended stay and serviced apartment sector, this is likely to increase significantly over the next year, due to market developments, and the growth of the extended stay pipeline as a percentage of the overall hotel stock in the US. There have been three major mergers in 2019, all of which have formed powerhouses with significant extended stay interests.
CapitaLand, the parent company of the world’s largest serviced apartment company The Ascott, is merging Ascott Residence Trust and Ascendas Hospitality Trust (A-HTrust) to form the largest hospitality trust in the Asia Pacific region. The merger creates an enlarged portfolio of 88 properties, many of them Ascott serviced apartment buildings, with more than 16,000 units in 39 cities and 15 countries across Asia-Pacific, Europe and the US. It will also diversify Ascott Reit’s global portfolio and give it access to the cities of Brisbane and Seoul.
Park Hotels & Resorts has reached a deal to acquire Chesapeake Lodging Trust in a deal that will bring its market value to $12 billion. Both REITS are owners of extended stay hotels under brands including Embassy Suites and Homewood Suites. And Canada-listed REIT NexPoint Hospitality Trust has agreed to buy Condor Hospitality Trust, an owner of extended stay and select service hotels.
Meanwhile, the first dedicated extended stay REIT, the Sandpiper Lodging Trust, was formed in 2018 and spent 2019 on the acquisition trail, buying up WoodSpring Suites and Extended Stay America branded assets, a path that is likely to continue in 2020.
• THE BRAND BONANZA
While the serviced apartment and aparthotel sector is unlikely to ever match the hotel industry’s seemingly relentless scatter gun approach to brand launches (at the Deloitte European Hotel Investment Conference, it was revealed that there had been 52 new hotel brand launches in the first 10 months of 2019) we will see plenty of new brands hitting the market in 2020, as well as operators increasingly developing a stable of brands, with different offers for separate markets.
Some successful examples of this are Staycity’s Wilde aparthotel brand, a premium product with a higher price point than its core portfolio, and edyn’s (formerly SACO) Locke brand. SACO was very much a traditional serviced apartment operator when it launched Locke, and it was the new brand’s potential which caught the attention of the company’s current owner Brookfield. Near the start of the Locke roll out, Stephen Hanton, then a SACO director, said of the new brand and its clientele: “It’s not an age thing – it’s more about attitude and can be sector specific. We have a lot of guests from the fashion, tech and start-up sectors. We drew as much inspiration from Airbnb and Uber for these properties as we did from traditional serviced apartments and student housing.” London-based operator Lamington has launched room2, which it describes as the first “hometel” brand. It says the properties “combine the best elements from Airbnb, serviced apartments and boutique hotels in an offering designed to appeal equally to corporate and leisure guests and those seeking alternative forms of residential accommodation”.
We are also seeing serviced apartment companies develop ranges of brands, or sub-brands, within their portfolios. Cheval Residences for example, changed its name to Cheval Collection, described as “a portfolio of brands, currently including Cheval Residences and the newly created Cheval Maison”. The company has signed Cheval Maison properties in Dubai, and, just this week, in Frankfurt. “Cheval Maison guests can choose a location and a smartly designed apartment to suit their needs and their budget with the confidence they’ll be living just like a local, without compromising on creature comforts. Apartments range from studios to three-bedroom apartments and are all fully equipped, spacious and boast a contemporary design that reflects an authentic local experience,” says the company.
Back in 2018, Stephen Hanton said he could see the potential for up to four brands under the SACO umbrella, so it will be no surprise to see edyn come up with something new in 2020. The biggest operators in the sector, who already have a range of brands (Ascott with Ascott, Somerset, Citadines and lyf; Frasers with Fraser Suites, Capri, Modena etc) are likely to add to those stables, as well as moving in to new markets through deals such as Ascott’s acquisition of a majority stake in TAUZIA, one of Indonesia’s top five hotel operators.
• UK APARTHOTELS KEEP ON BOOMING
The last six months, particularly in the UK, has seen the start of an incredible boom in aparthotel development. And it’s not just the big boys mentioned above who are getting in on the action. The concept has really caught the attention of small independent operators and developers, and is responsible for a surge of new projects across the UK, largely in the form of conversions of existing, usually unused buildings. And it is the provinces and regional cities that are really seeing the momentum.
In the last three months alone we have reported on developments in Liverpool, Portrush, Glasgow, Inverness, Coventry, Blackpool, Leicester, Bristol, Leeds, Chester, Birkenhead, Hull, Belfast and Newcastle. The aparthotel almost seems to have become the default option for many developers, appealing as it does to both leisure and business guests and offering lower staffing and operating costs than a traditional hotel.
This is borne out by recent research from commercial property consultancy Lambert Smith Hampton (LSH) which says that serviced apartments and aparthotels are the fastest growing segment of the UK’s hospitality market. LSH’s latest hotel market research Va Va Vroom! reports that the sector, currently represents just three per cent of the total hospitality accommodation in the UK, a significantly lower level than in many international markets.
In the US, the sector has a nine per cent market share, the report says, suggesting that there is considerable room for growth in the UK. Reflecting this potential, the sector is now expanding at an accelerated rate, with approximately 6,000 new units scheduled to open over the next two years – making up around 13 per cent of the UK’s total active pipeline. The report highlights that the sector is now appealing to a much broader customer base, with aparthotels increasingly popular for short-term stays. Newer aparthotel concepts are tapping into the changing consumer demands of the Airbnb era, it says, by providing flexible accommodation that offers more of a ‘home-from-home’ experience.
Simon Stevens, LSH hotels director, says: “The aparthotel sector is currently one of the most exciting parts of the market. While the rise of the Airbnb sector is sometimes viewed as a threat to more traditional types of accommodation, it is actually benefiting aparthotels by making consumers more receptive to alternatives to conventional hotels. With new brands being launched and established operators reinventing their products, serviced apartments and aparthotels will continue to innovate and grow. The sector will remain a melting pot for new ideas; borrowing from alternative concepts such as co-living and co-working to create inventive new hybrids.”
• IT’S NOT EASY BEING GREEN
Sustainability is a hot topic in the hotel world, and indeed the wider construction industry, but one which is not mentioned very often in conjunction with serviced apartments. But it’s good to see an occasional exception to the rule such as the proposed Park Street project in Cambridge which will include a Wilde by Staycity aparthotel. The building will include a green, or living, wall to increase the area’s biodiversity, as well as a bee hotel to encourage pollinators.
There have been other examples of operators and developers thinking along eco friendly lines. James Fry of Base Aparthotels is a keen advocate of sustainability, and Oakwood has won awards for its environmentally friendly supply chain, something which company founder Howard Ruby was passionate about. In the US, many new extended stay and serviced apartment buildings are achieving LEED Gold or Platinum ratings.
Perhaps the most eye catching recent example is the recently opened Apartrooms property. Built by modular construction specialist Stuart Duncan to Passivhaus standards, the building features a super-insulated structure, orientated to the south with large floor-to-ceiling windows, which capture solar gain. Triple glazing and mechanical heat ventilation heat recovery all help to reduce energy consumption. There are 9kw of solar panels on the roof. Instead of exporting to the grid, the property uses the electricity generated to power the building with the remaining surplus heating water. Its website displays our solar production in real time.
Duncan says: “We are finding that the larger companies already have sustainable travel policies and, although this is mainly aimed at air travel, it is beginning to include accommodation and hotels. As awareness grows of the current climate emergency, I think we will see this filter down to smaller companies and individuals. Eventually I hope to see the booking websites allow customers to choose sustainable features within their search criteria. Some are now including electric car charging points.”
If there was any doubt that the need for sustainability has gone mainstream, moves by Marriott and IHG to remove single-use plastic toiletries and perhaps more significantly, Brookfield Property Partners’ recent raising of a US$250 million war chest to develop and refurbish green property projects, are good indicators of the direction of travel.
• BUSINESS TRAVELLERS GO ROGUE
Traditionally, business travellers have been happy to go along with the – often limited – choices available to them through their company’s travel policy, or the options offered by their particular travel management company. But in the age of Airbnb and two-click booking, corporate travellers are starting to “go rogue” – going outside employer-approved channels when booking properties and transportation for their trips, if they don’t feel they are being offered what they want. They are also booking these options themselves.
The self-booking trend is symptomatic of a generational shift in corporate travellers who are used to booking their leisure travel themselves and don’t want to use an agent for business travel either.
The trend will result in travel managers and booking agents needing to up their game, providing a booking process which offers more choice, better availability and allows travellers to choose from more property and rate options. Combined with emerging preferences for unconventional accommodations, the need for more varied booking options will push corporate travel policies to become more flexible, adding a range of apartments and boutique hotels to the traditional “road warrior” haunts.
According to Trip Action, companies which offer wider travel options enjoy higher adoption rates for their corporate travel programs. Allowing employees to make choices that align with their needs and preferences “encourages a culture of transparency and reinforces trust between employers and employees” and lessens the chances of them going rogue.
Technology is the key to improving the process – it now allows companies to adopt a dynamic travel policy, which adjusts according to available options at the time of booking, allowing travellers to make their own choices while complying with company policies. And the trend offers a great opportunity for serviced apartments who can offer a more homelike experience, more akin to an Airbnb stay, while offering consistent and regulated accommodation.
Do you agree with me? What do you think will be the most significant industry trends in 2020? Drop me a line at george@internationalhospitality.media and let me know.
