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Real Estate Investment Trusts
Association of Serviced Apartment Providers
Extended Stay Hotels
The apartment hotels (or apart-hotels) sector in the UK is growing, but it still has a long way to go before it catches up with the US market. According to a recent report into the UK's serviced apartment sector by Savills, there are 5.2 units for every 1,000 business visitors in New York, while in London this figure drops to just 1.2 units. Although London welcomes fewer business travellers each year than New York, its supply still lags well behind locations such as Singapore, Sydney and Hong Kong, which all provide more serviced apartments than the UK's capital, despite receiving almost 50 per cent fewer visitors.Savills believes there is significant scope for growth in the London apart-hotels market, with the firm estimating supply of this type of accommodation could increase 200 per cent - which would mean adding a further 16,300 units to the market - in order to meet demand. Even though there is room for improvement in the UK apart-hotels sector, the Association of Serviced Apartment Providers (ASAP) noted in its Global Serviced Apartments Industry report for 2011-12 that the market is the largest in Europe, accounting for 11.3 per cent of the total revenue generated by the industry in the continent in 2009.Among the challenges facing the UK's apart-hotels sector is finding suitable land for development. ASAP explained that, in the US, large plots are available where entire serviced apartment communities can be constructed in a purpose-built development. In the UK, it is more difficult to acquire land of a suitable size - and in a favourable location - for such schemes. The association continued that, despite real estate investment trusts (REITs) showing an interest in copying this model from the US in Great Britain, they are more focused on developing social and/or affordable housing, rather than high-quality serviced apartments for business users.One of the strengths of the UK's market, according to ASAP, is domestic demand, which is stronger than elsewhere in Europe. London was singled out as the centre for the sector in the UK and indeed in Europe, with the organisation noting many established international operators of apart-hotels and serviced apartments see the British capital as "their foothold into the European market". Occupancy levels of such accommodation in London hit 90 per cent in 2011, ASAP data showed, underlining the fundamental strength of the sector here.Joyce Cawthorpe, association manager at ASAP, recently described the apart-hotels industry as "buoyant", although acknowledged that 2012 will be a difficult year for operators. "The start of 2012 was challenging for our members and, of course, the Olympics make it an unusual year, but the final quarter of 2012 is looking very promising," she asserted. Adrian Archer, of Savills Hotels and Healthcare, is also optimistic about the sector's future prospects, commenting: "With long-run occupancy 5.8 percentage points higher than hotels but with almost double the operating profit margin, serviced apartments clearly offer an attractive alternative to hotels."Savills pointed out the major differences between the apart-hotels sector in the UK and its US counterpart are branding and the presence of an established market. The concept of using serviced apartments for business travel is one that has existed in the US for many years, which means companies and their employees will consider this as an option more readily than those in the UK. There are also some big-name brands who have carved out a niche in the apart-hotels sector in the US, all of which boosts recognition of this type of accommodation.According to the Savills report, branding and market awareness will be vital for the growth of the UK's serviced apartment industry. The firm explained that, even if supply of such accommodation climbs, accessing the latent demand will require more than just building new units. The success of the sector "will be dependent on enhanced marketing of the serviced apartment concept", the organisation asserted, adding "branding will also be key, as there are a limited number of national branded operators in the UK".Mariott, Extended Stay Hotels and Intercontinental Hotel were named by the ASAP research as the top three worldwide providers of apart-hotels, based on the number of units they offer. Both Mariott and Intercontinental Hotel increased their supply of serviced apartments in 2011, the association revealed. As recognition of the sector in the UK grows, so too will investor interest, Savills suggested.The company said funds and private equity investors looking for a residential property investment, but who would prefer "a greater yield play" are likely to be attracted to the apart-hotels market. However, the firm predicted it could take two to three years before institutional investors enter the sector, describing the present picture as very similar to the early days of hotel investment, which was dominated by private equity buyers.
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*This page is provided for information purposes only and should not be construed as offering advice. IPIN is not licensed to give financial advice and all information provided by IPIN regarding real estate should never be treated as specific advice or regulations. This is standard practice with property investment companies as the purchase of property as an investment is not regulated by the UK or other Financial Services Authorities.