Marie Hickey, Director of Commercial Research at Savills, shares her insights on sector growth, consolidation & where the sector is heading.


Q: The sector: the Savills Extended Stay Report you published Dec 2016 highlighted record new development in the sector in the UK in 2017 (2,600+ units). Tell us more about the key growth segments.

There is indeed an exciting amount of growth across the serviced apartment sector, and we are definitely seeing an expansion into aparthotels.

Not being saddled by generations of legacy issues, the relatively new apartment sector is taking the opportunity to create something that legacy issues and sheer scale might delay in some traditional hotel chains. It shows that without having to reinvent the wheel, the opportunity is there to create a genuine alternative for consumers – if the sector gets it right.

Aparthotels themselves are really interesting in that their exciting new brands and concepts are directly competing in the hotel space. They are suited to city centre locations, are often well-designed to maximise the constrained space available, they tend to offer everything the traveller needs – food, transport, entertainment – pretty much on the doorstep.

Many of these new aparthotel concepts have communal spaces such as cafes and bars, they’re also offering something adaptable, rooting themselves in their local business and leisure communities. Some welcome guests in the way a local coffee shop might, and they can offer other services such as drop-off services through their reception areas, or meeting space – they can make their brands a regular part of the landscape just like a hotel might, offering the same kind of flexibility – and filling their spaces with others from the established community helps create a ‘buzz’.

Without going into too much detail about specific operators, there are some new developments now starting to cause a stir with their brands. SACO’s Locke aparthotel brand is gaining traction, offering the mix of design, quirkiness and quality that many consumers are warming to. It’s like feeling you’ve stumbled on something new and a bit personalised. I’ve also been past the Marlin aparthotel in Waterloo, due to open soon – it is very well-badged and looks good from what you can see – and the more these developments get into the customer consciousness, the more the brands will become known.


Q: Sector growth: do you see this growth continuing at a similar level in 2018 & 2019?  And which UK cities do you expect to see the key future growth?

I think we’ll see a slowdown in the growth of new stock, mainly as it takes time to bring new schemes online, but there will continue to be expansion. In terms of cities, it can depend on whether there’s a local business focus, and if so, what kind of business. It also matters what kind of hospitality offerings are already available, and where there’s the possibility of more. And, of course, the kind of tourism opportunities there are.

Of course, London leads the country still in terms of short-stay supply and demand – although Brexit will likely have some impact on that in time. The tourism market will remain strong in the capital, particularly internationally, but there is a lot of hotel development coming onstream which may generate additional competition.

One area where growth is being concentrated is around  transport hubs in London and we’re likely to see Crossrail open up new opportunities as areas of the city now become more easily accessible to the City and the West End.

Manchester is increasingly seen as the second city, especially in terms of business. A number  of corporates are locating there, particularly Technology, Media and Telecoms (TMT) businesses, which feeds well into the serviced apartment customer profile – a creative, younger, footloose workforce often on secondment or contract projects.

Edinburgh also looks attractive, and other less obvious cities are prime to grow – Leeds being one, where the sector is comparatively immature but there is known demand.

Ultimately, the sector’s growth in different cities will depend on the competition locally both for development opportunities and for customers.


Q: The aparthotel: do you expect the majority of future new development to be in the aparthotel sector and if so why?  Is investor appetite stronger for the aparthotel model?

The aparthotel model is appealing to investors – particularly institutional investors – for a number of reasons. For one, it’s an easily-understood concept for those already investing in the traditional hotel space. Aparthotels share the same C1 planning consent, and fundamentally look the same as a hotel, so the leap is not that wide.

Although one quirk that makes traditional serviced apartments appealing for acquisition, certainly in London, is where they operate  with C3 residential status, albeit this is more common outside of London.  These types of assets spread the risk for investors across short-term and longer lets and the potential to sell units back into the private residential market.

In terms of popularity with consumers, aparthotels have the opportunity to offer the kind of add-ons a hotel can, while the cost is often competitive even for shorter stays.  For investors, the lower operating costs and in turn improved margins, of operating an aparthotel compared to a similar 4-star hotel, can be an added attraction.


Q: Dual branded developments: Is there a growing trend towards more mixed-use developments – for example Cycas Hospitality’s new Manchester Staybridge Suites property will sit alongside a new Crowne Plaza hotel.  Do you believe we’ll see more mixed use developments in future?

It’s true there are these dual-branded developments, representing a clever way of managing operating costs. Hoteliers are offering the customer a range of options in a single location, whether it’s a one-night stay in a hotel room, or a longer one with in an apartment with other facilities such as kitchens or extra relaxation space. But with back office functions, such as housekeeping, shared across both, and the opportunity to keep the customer within the hotel group whatever their individual requirements, makes it an attractive approach to some hotel groups with both hotel and aparthotel concepts in their stable of brands.

It is also a great way of building brand strength – opening up what might be less recognised aparthotel brands, to a wider hotel audience.

However, I don’t see this as a major future trend.


Q: Other new entrants/brands: we’ve seen the arrival of the ‘micro’ apartment with BridgeStreet’s ‘Studyo’ brand with shared kitchen – do you believe this is likely to be a growth trend and why?

Apart from the consumer drivers, one of the biggest drivers in this micro-apartment growth is the cost of securing development sites, especially in the major cities, meaning developers/operators are having to maximise sites by accommodating more units as part of the scheme which inevitably means a shift towards smaller units.  What is interesting is that this doesn’t have to be at the expense of comfort and in-apartment facilities as the rise in clever design and technology is making it easier to make the very best use of smaller spaces.  However, I would stress that these ‘micro’ apartments probably only work in central city locations where customers are perhaps happier to trade space over location.

There will always be those looking for big apartments, just as some prefer personal contact, 5* concierge and unchanging consistency in brands wherever they ship up worldwide. Equally, there are travellers looking for new experiences, quirky modern design, and ‘contactless’ everything run from apps. And many may well be happy to share communal kitchen facilities, which means the actual rooms can be simpler, smaller.

The Zoku loft concept is very clever, many brands are also looking for ways to use their physical footprint to best effect. The CitizenM hotel brand was perhaps one of the first ‘micro’ room concepts to demonstrate that if you can get the design right, and the location right, guests are more than happy to compromise on space.  One of their big things was providing attractive communal facilities, a cafe, roof top bar, helping to generate some ‘buzz’ within the property, offsetting any potential concerns guests may have about the smaller rooms.  A number of operators in the aparthotel space have taken their lead adopting similar strategies where the location allows.

The bottom line is that if you are creating hospitality space within a city centre location, you are more than likely have to maximise capacity of the site in order for the development to stack up financially. Utilising better design and paying attention to communal areas/facilities, is a clever way of ensuring the offer is still attractive to guests.


Q: European Sector growth: Savills confirmed  in 2016 that the top 5 European growth markets for the sector were Dublin, Amsterdam, Barcelona, Berlin and Stockholm. Can you expand on the growth opportunity in these cities?  

There are many reasons why some European cities are seeing growth and may be more attractive from an operational and investor perspective.

Once the post-Brexit landscape becomes clearer, we may see some UK firms looking to place staff within the EU, albeit we don’t believe this will represent a significant shift in jobs. Dublin is one city very well-placed to capitalise on this – geographically close to the UK, sharing language, and with a strong digital and financial base. The city hasn’t seen a huge amount of hospitality development over recent years, particularly in terms of Aparthotels and serviced apartments, so at present stock is heavily constrained.

Dublin – like London – has a strong TMT sector, as well as financial; so there will be modern, tech-savvy corporates looking for short- and long-term accommodation such as serviced apartments and aparthotels.

Tourism-wise, the country’s also enjoying an increase in tourism numbers, so apartments and aparthotels offer attractive prospects for investors in both the business and leisure sectors.

Other European cities that may enjoy an upturn on the back of Brexit include places like Frankfurt and Amsterdam, and my prediction is that Dublin will be the primary beneficiary and provides the greatest opportunity for growth.


Q: Consumer understanding: what evidence is there that there is now greater consumer understanding of the sector and how has Airbnb helped this?

To be honest, there’s no statistical hard evidence of the influence Airbnb has had. Of course, the sharing economy has opened the consumer’s eyes to alternatives to traditional hospitality, but there is still an understanding that for most corporates, there are potential risks around Health and Safety, standards of accommodation or service, and regulation in regards Airbnb accommodation.  This is good news for aparthotel/serviced apartment operators as they offer the same accommodation experience as Airbnb but within the same regulatory framework as hotels.

It’ll be interesting to see whether Airbnb for Business will make any inroads, but I happen to know that for many operators that have dipped a toe using Airbnb as an alternative booking platform, the requirement to keep in direct contact via reviews and communication is just too labour-intensive!

But undoubtedly the sector can learn a huge amount from the Airbnb in terms of branding and its booking platform where it’s so easy, quick and hassle-free to book an apartment.


Q: Future outlook: where do you believe the sector is headed in the next 5 years? Do you believe there will be further consolidation of different brands? And what are the sector’s key challenges?

Generally, the whole hospitality sector is entering a period of uncertainty. Politically, economically, digitally, and in terms of global security, everything is getting hard to predict.

One challenge across the sector itself is the need to harness technology. Whereas five years ago this may have focused on hardware such as in-room iPads for example, the focus has now switched to software developments in the sense of allowing different parts of the business to speak to every other on a joint platform, from stock inventory to bookings and accounts. A number of hotel operators are already trialling new software platforms, such as AgentCash, and I think we’ll see those in the aparthotel/serviced apartment sector follow suit.

The consumer is becoming more tech-savvy across life, from communications across the world via Skype to paying for most things online with one click. If the transaction to book an apartment becomes too complex, you potentially lose the customer. BridgeStreet’s new online booking platform is going a long way to simplifying this – the ability to book over 60,000 serviced apartments on one website is a massive advance. Anything simplifying the end-user experience has got to be widely welcomed.

The challenge is also about reinforcing brands. The extended-stay market is small, so brand profile is key. Building brands that the consumer recognises, and then looks for, when organising a stay, or getting a corporate travel booker to arrange. There are currently a lot of separate brands out there. Some are making inroads, especially in certain locations. But there’s still a way to go in terms of brand recognition against some of the big hotel chains – especially with the amount of consolidation out there, mergers between huge operators and buy-outs.

And consolidation between serviced apartment brands – that’s something I think we might see more of over the next five years, and this should strengthen the sector going forwards. There are some great brands out there, but it’s unlikely there will be significant growth just through new development, consolidation may be one of the easiest ways to develop scale.

Whatever else, ­I think it’s fair to say – the future’s going to be interesting – in a good way!

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