BTN Europe presents an overview of business travel and MICE predictions for this year
Serviced apartments are evolving as corporates value their advantages
You may not have noticed, but the serviced apartment sector is undergoing a subtle yet dramatic transformation.
The lines between traditional hotels and other accommodation options are blurring. The major serviced apartment operators are diversifying their portfolios, repositioning themselves as total accommodation providers, while the sector has responded to the threat of online travel agents (OTAs) by launching their own bookable websites.
How we live usually determines how we work. By 2050, 68 per cent of the world’s population will be city dwellers. More families and professionals are now opting to co-share. Global serviced apartment supply is rising rapidly, too. The Global Serviced Apartments Industry Report (GSAIR) 2018/19 estimates there are now 1.02 million serviced apartments in more than 13,000 locations worldwide. The rate of supply grew by 23.7 per cent between 2016 and 2018, proving that apartment living is already a way of life.
Co-living and co-working are starting to define how accommodation providers design their products. The modern workplace can be the home, office or coffee shop, anytime day or night, so providers are striving to meet these disparate needs. The solutions represent a plethora of accommodation options, which some would term “hotel alternatives”, rather than serviced apartments.
Adoption and usage
More than half of British corporates now use serviced apartments for business travel, and 40 per cent of them allocate up to 20 per cent of their accommodation budget to extended stay products. Although growth in serviced apartment adoption among corporates appears to be plateauing, research by the Business Travel Show found that 29 per cent of buyers increased their serviced apartment usage in 2018 – the only accommodation category to see a rise over the previous 12 months.
Traditional source markets for serviced apartments have included the banking, finance and technology sectors, but that is changing, as George Westwell, director at Cheval Residences, explains.
“There is a more relaxed approach being deployed where employees are given more flexibility in terms of where they stay during a relocation – and we’re spouse and pet friendly,” he says. “We have chief executives of multinational companies staying for periods of more than a year because they don’t want to invest capital in buying their own place. Short stay is a broader mix and we are seeing more start-ups using serviced apartments for project work.”
Change is everywhere in the apartment sector, from design to communal areas and amenities. The sharing ethos propagated by social media has seen providers put communal spaces at the heart of new products and refurbishments. A good example is The Collective, which combines serviced apartment and co-living in central London.
Rebecca Hollants Van Loocke is chief operation officer for Europe and the Middle East at Frasers Hospitality. She believes that the serviced apartment sector model is changing. “Apartments are getting more compact, partly because investors want maximum returns on their investment per square foot, but also because we are using clever design to give customers what they expect from a larger apartment in a smaller space.”
The appeal of serviced apartments to property investors is also influencing the growth of communal areas because they enable developers to maximise the yield through cafes and bars. Staycity’s larger units, for example, include a cafe selling hot and cold drinks, snacks and breakfasts, alongside a larger guest lounge with multiple seating areas and lighting concepts.
Of course, smaller rooms cost less to maintain, too, as Charlie McCrow from The Apartment Service points out. “They can give the feeling of more space, even if that’s largely illusory. Guests today have the opportunity to work or play in the open space of a virtual world through their screens and the confines of smaller rooms are not as evident. They don’t feel confined by space because they are in the digital world.”
Ken Moore, managing director for EMEA at Oakwood, confirms that amenities in serviced apartments are changing. “Guests expect serviced apartments to provide standard amenities, such as a concierge service, a fully equipped kitchen, in-unit washer and dryer, wifi, modern entertainment systems with flat screen television and cable, a fitness centre and, if space permits, a swimming pool.”
In the future, serviced apartment guests can expect to see changes to the guest experience, as Hollants Van Loocke explains. “Online check-in will become the norm as it is with airlines. Guests will be able to select rooms prior to arrival, receive invoices and pay online.”
All this activity has changed the way serviced apartments are perceived as they have become more accessible to the corporate world. Sean Worker, chief executive of BridgeStreet, says the concept of serviced apartments is changing. “Instead of being a sterile, reliable and uninteresting corporate environment, today it’s more accurate to view these as alternative accommodations. Communal areas have evolved into casual working environments. The evolution that comes with it has begun to make it a personal choice for these travellers on holiday. That’s a proof-point we like to see.”
Ever since the early 1980s when the serviced apartment concept crossed the Atlantic, it has been positioned as a “home away from home”. But with travel and relocation managers focusing more on total trip cost, what’s the value proposition for the corporate and the business traveller?
The cost-efficiency benefits of serviced apartments over hotels are quantifiable but, as Caroline Saunders of SilverDoor confirms: “When booking accommodation, consumers generally have the overall cost of the trip in mind. Many companies are now focusing on how accommodation can cut total costs.”
Oakwood’s Moore agrees that a welcoming environment is a strong sales message for the sector, but “companies need to take into consideration the entire cost of the stay of relocating and travelling employees, while also considering which environment will allow the traveller to settle in quickly.”
Unlike hotels, serviced apartments are often close to work sites, saving time and money, and maximising productivity. “Teams can lodge near each other, letting them connect and socialise in a community-based environment. This keeps rates stable, often not the case with a hotel, especially during peak periods,” Moore says.
Worker at BridgeStreet doesn’t believe the “home away from home” proposition has changed. “It’s just business travellers are savvier. Generation Y and millennial travellers want an authentic experience. It creates better morale and improves productivity. Travel managers love that they’re providing better spaces at lower cost, in many instances up to 30 per cent less.”
Supply chain evolution
Oakwood’s Moore believes that the industry is witnessing “an evolutionary disruption in the standard of the annual hotel Request For Proposal process that’s traditionally been a part of many corporate travel programmes. The inclusion of serviced apartments is not just an addition to the supply chain. It represents a change in mindset that requires different technology, deal parameters and expectations on the part of guests.
“In some companies, the travel programme is more mature and developed than the housing programme that’s a part of the mobility business unit. These companies need an expert partner that can make recommendations,” he adds.
With over half of corporates now sourcing serviced apartments through a TMC or specialist agencies, such as SilverDoor and The Apartment Service, there’s evidence of growing maturity in the supply chain. However, agents have had to invest in their booking technology. Historically, operators would lease units but had no control over their inventory. Now, they have taken control of their brands, and their inventories, the supply chain is becoming more professional with a broader reach.
“Transparency is critical,” says The Apartment Service’s McCrow. “The stage of the hybrid [operator also acting as agent for other operators] is gone because brands are taking control of their inventories.” However, some TMCs remain at the earliest stages of their serviced apartment journey because they are restricted to units available via the GDS.
Corporates expect to be able to book long stays, while TMCs have realised the commercial benefits of helping them do so. “The key to serviced apartment agents’ greater sophistication is their specialist knowledge and faster response times,” says Cheval Residences’ Westwell. “There are also a number of smaller, more bespoke agents offering a very personal service. As an operator we have to stay connected with all of them.”
The challenge to consumers of getting what they want rather than what they can find has prompted serviced apartments operators to take on the OTAs at their own game. Through its Six Ways to Stay product, BridgeStreet has brought together disparate products and suppliers into one platform. As BridgeStreet’s Worker says, “It is unrealistic to expect any one operator to provide a full solution to every client’s needs globally. It’s all about a network and an experience that is vetted, seamless and guaranteed.
“All the industry needed was a level playing field where suppliers could easily upload their properties and business could easily book. Six Ways to Stay provides the access that global supply needs to be competitive.”
In the same vein, SilverDoor launched the OrbiRelo online booking platform, aimed at the global mobility industry. Developed out of its Orbi system, which enables users to make instant online bookings across a global inventory of apartments, OrbiRelo is tailored to the needs of mobility management.
Looking ahead, there are mixed views on whether the extended stay sector will see consolidation sooner rather than later. Over the last 18 months, the sector has seen two big M&A deals. In 2017, Oakwood was acquired by Mapletree Investments, while Brookfield’s £430 million purchase of SACO was confirmed last year. As 2019 dawned, news came that real estate lender ZSL Capital plans to invest more than £100 million in serviced apartment projects by the end of 2020 – further proof that investors are buying into the serviced apartment opportunity.
Cheval’s Westwell believes consolidation will come soon. “Some of big brands have said they wish to grow their footprints but the only way they can do so is to acquire others. I believe the gap between the large and small operators in terms of volume will get bigger with fewer mid-size players in the market. This will make the segment even more competitive to hotels because of conversion rates and greater profitability.”
So, with micro apartments and new concepts proliferating, should we be referring to serviced apartments as alternatives to hotels?
“No,” says McCrow of The Apartment Service, “because most of these new extended stay products are types of hotel run by major hotel chains. The real point of difference in a serviced apartment is the lounge, fully equipped kitchen and their locations outside city centres.”
However, Oakwood’s Moore believes the definition of serviced apartments is already too fragmented. “Serviced apartments cater to business travellers by providing a space that reflects their lifestyle. They allow relocating and travelling guests to settle more easily by giving them a stress-free transition.”
The challenge for the serviced apartment sector is a lack of understanding about its product due to its sheer variety. It’s hard to communicate these differences consistently across all channels – especially for long stays.
An evolutionary process is well underway but, as Billy Hughes, area general manager (UK) for The Ascott, points out: “There’s still lots of work to be done with The Association of Serviced Apartment Providers to classify each type of accommodation so that we can achieve greater clarity and understanding.”
SilverDoor’s Saunders believes greater transparency is needed. “The relationship between the operator brand and the agent is defined, and bookers tend to understand the market, but the disconnect occurs with the guests themselves.”
The sector will no doubt continue to aim higher, offering better connections to travel buyers, agents and guests alike.
Jan Jacobsen is global accommodation manager, AIG. He was voted Serviced Apartment Travel Buyer of the Year at the 2018 Serviced Apartment Awards
“AIG has developed a tool that compares the prices of hotels and serviced apartment by apartment type and length of stay, in different destinations. For example, a four-night stay in a serviced apartment in New York was 37 per cent cheaper than a hotel. A four-night stay in a studio serviced apartment in London on the same dates was 26 per cent cheaper, and 22 per cent cheaper in a one-bed apartment compared to a hotel.
“We are doing a lot of education internally within AIG to drive serviced apartment usage. Our travellers like them because they have space and flexibility, although some say too much space makes them feel lonely!
“As well as being very cost-control conscious, serviced apartment adoption is also driving traveller satisfaction. Our target is for serviced apartments and aparthotels to account for 40 per cent of our total accommodation usage.
“Serviced apartments are becoming over-complicated, or they are so vanilla they end up pleasing nobody. A good serviced apartment is maintained to the same standard as a hotel. Issues get fixed. The kitchen and bathroom are of a high specification.
“The furniture should be as good as the traveller has at home because their expectations are based on their home environment.
“Sourcing is not as much of an issue as it was. New players are coming into the market with the necessary understanding of corporate sourcing.
“My frustration is the big hotel chains’ systems do not have the same flexibility. No one is prepared to spend the money on a ‘Clapham Junction’ to which everyone connects and buys from – effectively, a GDS for serviced apartments.”