The serviced apartment concept is becoming an increasingly global phenomenon. Catherine Chetwynd reports on the growth of the home-from-home accommodation option
ON PAPER IT LOOKS GOOD for the serviced apartment industry. Travel statistics are strong, major cities are investing in infrastructure, demand for serviced apartments outstrips supply in many areas and more organisations are recognising the benefits of putting travellers in serviced accommodation.
But there is also a downside. There is confusion as to what kind of licence is required to operate a serviced apartment, and local councils often don’t have the remotest idea what a serviced apartment is, which hampers the granting of planning consent. The same could be said of investors who, consequently, don’t see the opportunity provided by the sector, although this appears to apply less to aparthotels, which are run on a more familiar hotel model.
And this is exacerbated by a lack of standardisation worldwide, which “is the key to driving the greater understanding of serviced apartments that will ultimately realise the potential of the sector”, according to The Global Serviced Apartment Industry Report 2013/14 (GSAIR), produced by The Apartment Service, and for this reason, operators agree that a code of conduct is essential. “And yet neither initiative seems to be any nearer to fruition than they were at the time of our last report [two years ago],” writes Mark Harris, who is the author of the report and director of marketing consultancy Travel Intelligence Network.
RELIABLE SUPPLIERS
This is not, however, to suggest that the entire sector is characterised by irregularities and uncertainties – we see travel buyers choosing preferred suppliers on account of their reliability. Global telecoms service provider Amdocs puts its relocating staff in apartments for six weeks until they can find themselves somewhere to live, and also uses apartments for those on projects who may prefer to cook their own food for cultural reasons. “We use thousands of serviced apartments worldwide and tend to start with SACO, which is our preferred supplier, because the standard of the product is consistent and we know what we are going to get,” says Amdocs’ Europe travel manager Emma de Lange.
Sam van Leeuwen, head of UK hotels and venues at Pricewaterhouse Coopers (PWC), uses Bridgestreet in the UK for the same reason: “They have a consistent product, we know what we are buying and we have the support and partnership to be able to maintain good rates and properties,” she says. She uses SACO for accommodation outside London.
The GSAIR estimates there are 655,911 units in 8,802 locations worldwide, suggesting supply has increased by 9.4 per cent since 2011. But the picture varies considerably by region, and the supply of the 15 top global players has grown by just 1.7 per cent, leading the report to conclude that the overall increase reflects the influx of independent apartment operators into the market.
Demand continues to grow apace, with 65 per cent of Association of Serviced Apartment Providers (ASAP) operators reporting increased demand year on year; and there is general optimism in the sector: 74 per cent of operators in the UK and Ireland expect their business to increase during 2013 and of those, 50 per cent expect an increase of up to 10 per cent, with 20 per cent anticipating growth in excess of 10 per cent.
RATES BROUGHT TO BOOK
Rental rates received particular attention in this year’s report, highlighting some interesting trends. Although 26 per cent of serviced apartment operators said they achieved published rates, 74 per cent said the rates they achieved were lower than their 2011 equivalents. This ties in with the corporate response: 43 per cent of corporates booking direct with apartments and 56 per cent of those booking via travel management companies (TMCs) said they were getting discounted rates.
With average discounts at between 10-20 per cent, it may be that some serviced apartment operators are trying to compete with hotels but without the service levels to match, leading to discounting.
Vangelis Porikis is regional director for Adagio, which is Accor's aparthotel brand. He says Adagio sets rates according to the local climate. “We are always more attractive than a hotel in the same location,” he says. “We offer weekly housekeeping and we have lower costs than a hotel – but in Munich, for example, where there is a shortage of flats, that impacts on the rate.”
The trick is to have varied lengths of stay in each building. “If someone is staying one or two nights, we are directly competing with hotels,” says Porikis. “If we apply the hotel model we may be fully booked on a Wednesday and then cannot offer extended-stay and take a Monday-to-Monday booking for seven nights. And a lot of people are arriving for one month and if the project continues, they want to extend.”
The Ascott group guarantees the best available rate of the day in Citadines to guests booking online, although, inevitably, rack rates in peak season are high. And when comparing Citadines rates in any city centre in Europe, “they are generally around 30 per cent lower than hotels, including F&B [food and beverage] expenses, as guests are able to buy from local shops and cook for themselves”, says Ascott general manager Rebecca Hollants van Loocke.
Frasers, on the other hand, tends not to discount rates but gives added value in the form of unlimited high-speed internet access throughout properties worldwide. The GSAIR marks a steady rise in prices for stays of seven nights-plus, and this still proves to be better value than staying in a hotel.
“Discounting against published rates is commonplace in all accommodation sectors,” says Citybase Apartments director Richard Lovelock. “Providers will discount to stay competitive, according to target-market demands, giving long or short-stay discounts for commitment, or in softer market conditions.”
PLANNING ISSUES
Because serviced apartments do not have a dedicated local planning-usage class, there is considerable confusion around the type of licence serviced apartment operators require to do business. A C1 licence is for hotel use and attracts business rates, while C3 is residential, with attendant residential (council) tax. To add to the complexity, an operator may need a mixture of licences to cover several buildings in one borough.
“We operate in Marylebone on a 90-day minimum stay, with an average stay of 7-8 months and we need C3,” says managing director of The Apartment Service (TAS), Charles McCrow. “Every area has a slightly different slant on it and, if no one is worried that someone is breaching the terms, then it is overlooked.
“The industry is focusing more on this, and at the ASAP conference in December, we are having a seminar on the subject, led by a planning lawyer. When planning departments in councils get an application to build serviced apartments, they don’t know what class of use to grant it.” TAS has been talking to planning lawyers about getting permission for change-of-use on a building in Surrey, to do nightly and short-stays, so it is a subject McCrow knows well.
Similarly, Go Native had discussions with Redbridge Council when it took over Pioneer Point in Ilford. It had a C3 licence, limiting lets to a minimum of 90 days. “We asked to be able to operate the C3 building on a shorter-term basis, to meet clients’ demands,” says managing director Shaun Prime. “Our clients are largely young professionals who contribute to the local economy. The council issued a ‘certificate of lawful use’ for us to operate the building on a short-stay basis and we came to an arrangement over council tax.”
Go Native is also looking at a similar scheme in south London – an office building with consent for conversion to residential use.
TOOLS OF THE TRADE
Even though the internet is now the world’s preferred booking channel – accounting for 54 per cent of all travel bookings, according to tourism data system World Travel Monitor – any distribution solution is still a work in progress, and the industry remains polarised on the issue. While some suppliers are embracing global distribution systems (GDSs) and any other available means of getting their product in front of buyers, some are crafting their own technology, while others continue to protest that email, fax and personal contact are the only way forward.
If a booker wants two nights in an extended-stay property, that can easily be arranged via GDS, and given that many of the aparthotels are run by hotel companies, it is not surprising that they are available there. The Ascott has always used GDSs but, as land product leader for FCM Travel Solutions and Corporate Traveller Ryan Johnson points out: “The costs can be prohibitive – anything from 7 per cent to 30 per cent, depending on the provider. For an aggregator based in a call centre and selling a number of apartments, GDS would be more cost-effective. However, if our consultants are booking a long-stay for a client, they will need additional information about the property and rates, and this is best done by phone or email.”
Amdocs’ Emma de Lange agrees: “Email works fine. I usually have quite a few questions about the accommodation and SACO responds quickly.”
However, PWC’s Van Leeuwen is less easy-going on the subject: “A lot of providers are promoting the fact that you can book on the GDS and through an online tool, but when you investigate, there are a lot of exclusions: you cannot book more than one month in advance, there is a minimum of seven nights and often, it is not an online system but an online request system. They are trying to sell something they cannot provide.
“Bridgestreet is not pretending you can book online – you submit requests online,” she says. “They need to yield the apartment. If I had PWC people staying in an apartment for two months and I was suddenly told I could not extend because an online reservation had come through, I would not be pleased. It lacks flexibility. With Bridgestreet, I know they will find space for people to stay on in the same apartment.”
Silverdoor continues to be a protagonist for the human touch. “No single distribution system exists for serviced apartments, and this is likely to remain the case in the immediate future, as bookers need first to determine their accommodation requirements – proximity to the guest’s office, public transport options, size of the unit and the standard of the equipment within it,” says head of management supply Alice Brunel-Cohen. “The latter two, in particular, are where the human touch comes in, as the GDS is unable to extol an apartment’s virtues in the necessary personal manner.”
TAS has a new system for Roomspace, which is powered by Travel Stream. “It connects to a channel manager and has a content management system,” says TAS’s McCrow. “And it is compatible with all tablets and portable devices.”
The system removes the clunky (and unreliable) requirement for each provider independently to take offline any inventory sold, as it handles that for all distribution channels, thus removing the risk of double booking. “We plan to promote that to other suppliers, so that they can channel-manage availability through our website. It is cost-effective because we can negotiate with OTAs [online travel agents] for a lot of independents, rather than each one fighting their own corner,” says McCrow.
And according to technical director for Travel Stream, Simon Wilkinson: “Within a couple of months, it will also provide a property management system, which suppliers will be able to log into to see rates customers are paying, details of check-in and -out, cleaning and so on.”
Go Native recently launched a bespoke operating platform, Ignite, which includes “instant booking, live availability of owned and third-party properties with fully integrated distribution to a range of online channels, including GDSs and TMCs”, says Go Native’s Prime. “We are also providing a client portal to keep corporates informed of where their people are, with self-booking tools and information such as cost per head, per night.” The system has a live guest portal shows tracking and management of any faults, and gives apartment information.
In addition, Ignite runs guest surveys, looking at every angle from booking to problem solving, and if a guest-stay scores below a certain level, Go Native will examine the experience and respond directly to the customer, also passing feedback to providers, picking out key areas for action.
Prime feels this goes some way to addressing the problems of consistency: “This system allows us to share information, which is a step in the direction of showing a sense of unity,” he says.
SACO has also invested in online booking technology. “This has resulted in a 50 per cent increase in online sales,” says director of sales Ben Harper. “Key locations are also available on the GDS, but we are looking to add more and have greater visibility on this platform.”
Skyline Worldwide operates Skylinc, its online booking tool that provides a single point for companies to book accommodation. It can be used by end users, procurement teams and TMCs, giving year-round access to information about travellers and where they are staying, as well as booking and payment details – Skyline says the system helps travel managers with policy compliance, while its data reporting and traveller tracking capabilities help with visibility and control of travel programmes and meeting duty of care requirements.
Citybase was the first specialist serviced apartment booking agent to provide instant booking options, claims Richard Lovelock. “We developed live availability and instant confirmation on our website, and then a content API [application programming interface] system to feed TMCs and booking systems with apartment content,” he says. “We have also just launched a self-booking system, My Account, for clients who are unable to obtain access to our content via their travel provider or booking system.”
GLOBAL GROWTH
The 9.4 per cent increase in extended-stay properties worldwide, based on the GSAIR’s estimates, reflects the burning desire of hoteliers to enter what they see as a profitable sector. Marriott is rolling out Residence Inn and Marriott Executive Apartments (MEA). Residence Inn made its presence felt in Europe with openings in Edinburgh and Munich in 2011. Like hotels, brands differ according to location. “In Europe, we had to make the room more slender – we have to be mindful of the cost factor and expectation,” says Marriott vice-president Loren Nalewanski. “In the Middle East, rooms are bigger and there is an F&B option.” There are 24 MEAs in the pipeline in Asia, the Middle East and sub-Saharan Africa, while 98 per cent of the Residence Inn pipeline is in the US.
Accor is developing Adagio’s European network, including its economy brand Adagio Access. Adagio is also launching in Abu Dhabi this year, and in Sao Paulo and Dubai in 2014. “The business plan is to have 150 by 2016, including in Moscow and Birmingham, a second in Munich, and some in France,” says Adagio’s Porikis.
Starwood’s first European Element opens in Frankfurt next year. The brand is modelled on Westin, is sustainably designed and is powered by 100 per cent renewable energy. Elements have pantries, fitness centres, pool access, complimentary wifi and 24-hour business centres. Further Elements will open in Muscat (Oman) and Suzhou (China) both in 2016, with Germany, UAE, Saudi Arabia, France and the UK viewed as potential locations.
The Ascott continues to expand its Citadines Suites (upper tier) and Prestige, which gives guests the option to pay for extra services. New Citadines on the block are in Jakarta (Indonesia), Kuching (Malaysia) and Guangzhou (China) in 2013; Baijia Lake Nanjing (China) in 2014; and two in Jeddah, in 2014 and 2015.
The first Capri by Fraser launches in Frankfurt with 152 units in 2014/15, and Munich is likely to follow. In the UK, SACO is opening an aparthotel in Manchester this autumn. “We anticipate replicating this model in targeted cities,” says SACO’s Ben Harper.
Marlin is looking at a potential site for an extended-stay property and, next year, City Apartments is opening a high-spec aparthotel in the heart of London’s Square Mile
There will also be two newcomers to the sector: Arora hotels is developing a 100-unit property adjacent to its 452-bed hotel at the O2 Arena; and Bridgestreet is to create Aparthotels by Bridgestreet, with fireplaces, configurable furniture – and a café bar adjacent to the lobby.
“Typically, this will not be operated by us but by a local brand, so that it attracts business from outside the hotel,” says Bridgestreet’s chief executive Sean Worker. The first one opens in Birmingham city centre early next year.
CORPORATE CONFIDENCE
Good occupancies, continued growth and recognition by companies all help to raise the profile of serviced apartments. But although the sector is maturing, inconsistencies, lack of investment and confusion around planning consent are just some of the obstacles that will have to be overcome if the industry is to take full advantage of the opportunities that exist. Hopefully, increased interest from global investors and further mobility in Europe will foster further growth, which will be accompanied by greater corporate confidence in the concept.