UK: Recent research from Jones Lang LaSalle’s Hotels & Hospitality team points to a significant rise in serviced apartment development and investment in London.
The report says there has been an increase in new openings due to high demand for both short- and long-term accommodation and a lack of serviced apartment accommodation stock, with five confirmed projects in 2013 and 377 units in the development pipeline. The conversion of secondary offices to serviced apartments could provide attractive opportunities for developers given that occupancy levels for serviced apartments stands at 85 per cent, higher than the hotel market level at around 81 per cent.
Many of the new and forthcoming units are either part of residential, hotel or mixed-use developments, and while London is the most mature market in Europe, it is one of the smallest internationally. Research from Savills earlier this year found that when compared with other global centres, UK cities are seriously undersupplied with serviced apartments. London has 1.6 serviced apartments per 1,000 business visitors, Edinburgh 1.7, Manchester 0.9 and Birmingham 0.6.
The JLL research says that trading performance is forecast to improve as better economic conditions drive corporate demand. Serviced apartments also tend to be more profitable from a management perspective due to less intensive levels of service and staffing which leads to lower payroll costs.
It also predicts new investors entering the London market, citing two recent transactions -the sale of the Grand Plaza Serviced Apartments in Bayswater for £98 million in September to a Malaysian state-owned entity, and the Staybridge Suites Stratford (including the Holiday Inn Stratford) which sold for an estimated £64 million to Singapore-based M&L Offshore Investments.
Adam Wilson, vice president in Jones Lang LaSalle’s Hotels & Hospitality team said: “The outlook for the sector is positive because of limited supply, good profitability and high yields. Institutional and traditional residential investors have historically been the primary buyers of serviced apartments, but we are now witnessing specialist serviced apartment operators move into acquisition mode such as Ascott, Frazers and Cheval, which is driving pricing further.”
On the investment front, the report said: “Investor interest is growing in both diversity of investor type and the number of active investors operating within the sector. Traditional residential investors were initially the mostcommon type of serviced apartment owner, which is understandable given the similarity of the asset classes. However, other buyer types such as institutions have been attracted to the sector by stable operating results coupled with strong underlying residential real estate values. In addition, growing interest from specialist serviced apartment operators to expand or enter the market has resulted in more strategic purchases for branding purposes. High net worth cash rich investors, private equity funds are also keeping a close eye on the sector, although their primary focus remains largely upon luxury development opportunities located within central London.”
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