Seminar 5: Investors Discussion Panel

  • AHV Associates   Andrew Harrington
  • Cheval Residences & Cheval Property Management   Mohammed S Almarzooqi
  • Cycas Hospitality   John Wagner
  • Hotel Analyst   Andrew Sangster (Moderator)
  • SACO The Serviced Apartment Company   Stephen Hanton
  • Savills   Marie Hickey

Andrew Sangster, Hotel Analyst, introduced the session outlining the 2 key reasons we have seen the rise in interest in the serviced apartment sector:

  1. Alternative accommodation’ availability: it’s now so much easier for potential customers to find out about alternative accommodation than ever before; with the rise of distribution platforms like Airbnb, booking.com, HomeAway etc it is much easier for clients to explore and book  ‘alternative’ accommodation options.
  2. Yields: the yield which serviced apartments are achieving has increased significantly.

The panel introduced themselves with Mohammed S Almarzooqi, Cheval Residences & Cheval Property Management, Stephen Hanton of SACO and John Wagner of Cycas Hospitality all confirming their ambitious growth plans to expand further.  Marie Hickey, Savills explained her role is as senior research analyst looking at the ongoing performance of the sector, future trends etc.  Andrew Harrington of AHV pointed out that he is increasingly looking at non-mainstream accommodation sectors which includes the serviced apartment sector; he expects to see more mergers and acquisition activity in the coming months.

The overall feeling is it’s an under-priced sector in terms of the yield differential.

In New York brands are more developed whereas in London there just isn’t the same brand awareness.  Andrew Harrington explained that it has tended to be an inefficient market as while there has been increased consumer demand, the capital has not flown in.  Some of the key reasons for this are:

  1. It’s not a well understood market
  2. There isn’t a large stock compared to the branded hotel stock.
  3. Market dynamics: cost of acquiring customers is low but the average length of stay is high

He pointed out that the yields in Australia are the same as for convention hotels but there is an inefficient information flow; there needs to be more transparency.

He also commented that as/when the acquisition of SACO transacts it should be a game-changer for the sector and it will help the sector establish itself as more mainstream and in turn generate more interest from investors.

The importance of branded product

John Wagner, Cycas commented that it has taken a while for the sector to gain traction and he referenced the fact that it takes the branded product to bring institutional money in.  That in turn drives confidence in the sector.  He had experience of this in the USA 30 years ago – over time they were able to sell the sector to the banks and key lenders and once the momentum starts the growth curve is dramatically steep.

Stephen Hanton, SACO, confirmed that the aparthotel model is driving significant consumer demand.  He gave the examples of SACO Cannon Street and Marlin’s Waterloo aparthotel which proved to be very successful delivering high occupancy shortly after opening . Currently demand is exceeding supply.  Marie Hickey, Savills commented that there are some absorption issues in some regional markets – for example Manchester – but this should be short-lived and occupancy should soon return to positive territory.

Mohammed S Almarzooqi confirmed that Cheval Residences are looking to expand in both Europe and the Middle East, but on a managed property basis.  He confirmed that private families are currently a key part of their core market; they have 2 types of assets – classic short term lets of 1 or 2 nights and serviced residences  of 2,000/3,000 sq ft where clients stay for 1 year or more.

John Wagner, Cycas, explained how they are developing the dual-branded model including the ‘double-decker’ model they are constructing in Manchester;  Staybridge Suites Stratford was the first example of this with a Holiday Inn hotel and then a Staybridge Suites property above it.  Then there can be one general manager, one sales team and one housekeeping team deployed across the whole property.  He also confirmed ‘brands will drive the understanding of the sector’.

 Similarly Stephen Hanton commented that there is an opportunity for at least 4 sub-brands to be developed under the main SACO over-arching brand.

Future Growth – Where?

When asked by Andrew about where in Europe future growth will come, Marie commented that in the UK it’s  Manchester which is very much emerging as the second city which can support significant expansion.  In France it’s Paris and in Germany there will be significant expansion in key cities.

Mohammed S Almarzooqi commented that it’s both in the Middle East and in Europe where the growth will come for Cheval in the near future.  There is a huge demand in Dubai and Jeddah for serviced apartments.

John Wagner confirmed that 80% of their future pipeline is in continental Europe – they have 4 projects in the Netherlands, 2 in Brussels and 3 to 4 in Paris.  It’s always in big cities because ‘the demand is already there if we can get to build the right properties’.  In the UK the longstay corporate traveller  ‘is our bread and butter’.  This market is far less volatile than for hotels, far less cyclical than mainstream hotels because of the characteristics of the people who stay with us and the jobs they do.’

Stephen Hanton confirmed SACO are focussing their expansion primarily within Europe in locations ‘where our customers are telling us to be’.  Often they may enter the market with a boutique lifestyle product and then put a second product in the given location.  They are also taking a look at the Middle East and Asia and as well as possibly taking the Locke aparthotel brand to the US.

The impact of Airbnb on the sector

Marie Hickey (Savills) commented that while 2 years ago Airbnb had been perceived as a massive threat, in fact it has been hugely beneficial for the sector having raised awareness around alternative accommodation and also mentioned that she believes there are signs of things slowing down in terms of the growth in the numbers of hosts, so competition has possibly peaked.

Andrew Harrington of AHV commented that there is evidence that it has driven the ability to yield and drive up pricing.  An STR report confirms that higher occupancy is achieved the more Airbnb is used ie Airbnb does drive demand up for a particular location and there is no evidence that it leads to lower occupancy in hotels.  Many people don’t want to stay in a standard hotel ‘box’ room.  The space which serviced apartments offer is attractive and set for further growth.

Similarly Mohammed S Almarzooqi commented that Airbnb does help generate incremental business; John Wagner compared it to Ryanair & Easyjet opening up the airline market; and mentioned that if clients discover they like having a kitchen then in time once they have more disposable income they will find their way to our sector.

Stephen Hanton SACO also believes Airbnb is good for the sector confirming that we are the professional arm of the sector and it doesn’t affect us negatively.

 

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