Occupancies and optimism in the serviced apartment sector are growing as the industry continues to mature and gain awareness among business buyers and travellers.
Figures from data specialist STR Global and the Association of Serviced Apartment Providers (ASAP) are evidence of this: in Q1 of this year, occupancies in London reached 77.8 per cent, up 10.2 per cent on Q1 2013, and although rates were down 7.4 per cent, RevPAR was up 2.2 per cent. In regional UK, occupancies grew by 2.7 per cent to 72.2 per cent over 2013, with rates up 10.2 per cent and RevPAR showing an increase of 13.1 per cent.
In the UK alone, 77 per cent of British business travellers now stay in serviced apartments up to five times a year for trips of up to seven nights – and 79 per cent of those prefer them to hotels, according to the Global Serviced Apartments Industry Report [GSAIR] 2013/14, produced by The Apartment Service (TAS).
“We have seen an increasing demand for shorter stays that are in direct competition with hotels, as bookers notice that serviced apartments can be a good, if not better, option for travellers,” says Ollie Lintott at City Apartments. This gives operators the chance to maximise revenue, but it is also contributing to the shortage of serviced apartment accommodation.
Industry standardisation
One of the enduring stumbling blocks to the growth of the industry is fragmentation. As managing director of TAS, Charles McCrow, points out in the GSAIR: “The evolution of the serviced apartment sector has varied between regions, with local flavours and styles forged by local demand and regulation.” However, this does not preclude greater homogenisation.
To that end, spearheaded by consultancy HVS, several industry leaders have created a charter that aims to standardise and define categories in the sector. ‘Serviced apartments’ is to be the umbrella term, which embraces ‘aparthotels’ and ‘corporate housing’. Aparthotels fall under C1 planning (short let), range from economy to luxury, have fixed inventory and staff employed on site (with manned reception and services), and have room to work, eat and sleep in the unit.
Corporate housing, on the other hand, is defined as comprising self-contained apartments in a residential building that is managed by an individual or legal entity. It is better suited to longer stays, has in-room laundry, and has 24-hour service contact, although not necessarily on-site.
Meanwhile, ASAP’s Quality Assessment Scheme continues apace, with 35 per cent of the 73 members inspected and the rest to be completed by early October. The scheme has been received with enthusiasm: “Some members have seen so much value from the programme, they have requested to have each apartment in their portfolio assessed, and many have asked us to sample specific blocks rather than the random sample of 20 apartments we had planned,” says the association’s managing director, James Foice.
Scores are aggregated by price point, competitor and location, so that operators can see how the quality of their offering differs from competitors. Those that are successful will become a quality-accredited operator, and those who do not participate or do not achieve full accreditation will be classified as an associate member.
In an interesting development, the British Hospitality Association (BHA) has launched a dedicated sector programme for serviced apartments. “Apartment living is a popular and growing trend, and this launch reflects the evolution in the hospitality and tourism industry,” says CEO Ufi Ibrahim.
ASAP marketing consultant Joyce Cawthorpe adds: “We are interested to see the BHA has set up an initiative for serviced apartments. We respect the BHA and, in particular, the high profile they achieve for the hospitality sector and their lobbying efforts with government.” She says ASAP and BHA bosses plan to meet to explore ways of working together, “in particular on the skills agenda, since it’s important we don’t duplicate in any key areas”.
A matter of policyApartment use is growing as a percentage of total overnights among 60 per cent of corporates, according to the GSAIR, with corporate buyers giving convenience (70 per cent), price/quality comparison (68.8 per cent) and cost (63.8 per cent) as the main reasons. And it is making its way into requests for proposal (RFPs), too.
Although many travel buyers are only beginning to put serviced apartments into travel policy, the relocation business has long been using them for housing clients and their families until they find somewhere permanent to live. But the two could work together to leverage rates.
“We’re seeing in-house mobility and travel teams working more closely and more globally,” says managing director of SACO, Stephen Hanton. “Temporary accommodation was often seen as a niche product, so many organisations allowing local choice. As volumes increase, the risk inherent in this, from a quality and compliance standpoint, is becoming evident. While local expertise and preference is still a key buying motive, the benefits of consolidating relocation and travel volumes, and the delivery of globally consistent supply, compliance and service standards are a real opportunity for buyers. We’re working closely with our clients to help them quantify and realise these benefits.”
Procurement specialist Agrega recently did exactly that, when global sourcing manager Alison Searle took control of an unmanaged serviced apartment policy. “We worked with HR to
aggregate travel and relocation and made huge in-roads. We now have a well managed serviced apartment programme and did that without changing the relocation specialist. We saved 22 per cent by cutting out commissions and taking into account the transaction fees they implemented, and made an 18-month deal to start with.”
Searle inspected the inventory of potential suppliers. “We saw everybody who wasn’t selling other people’s stock,” she says. “It was surprising how much the apartments varied. We came down on the side of those who took the most professional approach to us.” As a result, Agrega’s preferred suppliers in London are Skyline, Oakwood and Marlin, with ESA in Southampton. “Between them, they meet 80-90 per cent of our requirement,” she says. “I would recommend anybody to do it.”
Agrega uses serviced apartments for junior management trainees who come into the UK on secondment; employees relocating to the UK, who have up to 30 days in a fully-serviced apartment while they find long-term accommodation; and contractors and junior staff coming into the company’s offices. In January, Agrega took on hotel booking agency HRS worldwide. “The next stage is to ensure that our negotiated rates for serviced apartments appear in HRS, making them available to transient travellers,” says Searle.
Centralised programmes
Sabrina Carparelli is EMEA head of sales for Skyline Worldwide. She highlights several recent examples where travel and HR have come together to launch a centralised
accommodation programme, including EY (Ernst and Young), Citi and Shell. “Not only is it easier to manage and measure service levels, but the bigger the stock purchased, the lower the price,” she says.
However, she has reservations about taking a global approach. “Suppliers are more established in some regions than in others, so I would choose more than one supplier, based on where my highest volumes were.” That way, suppliers have a physical presence in their key region, allowing them to support travellers effectively and in their time zone; better product and local knowledge; and best rates that can be guaranteed for the duration of the contract.
Spanish telecoms company Telefónica is a regular booker of Accor’s Adagio accommodation and also works with HR to negotiate rates. Use is not written into travel policy, and priorities are best price and comfortable accommodation for travellers, with decisions made jointly by the team manager and traveller.
Thomas Karl is mobility manager for Telefónica Germany. “I work closely with travel management colleagues in other Telefónica countries, and in the Telefónica global office in Spain, to create a perfect network for all business needs in each part of the world,” he says. Feedback on serviced apartments from Telefónica’s travellers is excellent. “Adagio apartments are new in Germany and employees like the independence, the modern interiors and having more space than they do in hotel rooms,” says Karl.
Serviced apartments can also be used for putting a team into a city for a trade fair or conference, which used to mean either booking numerous rooms for single occupancy (at high cost) or asking personnel to share twin rooms, points out CEO of Think Apartments, Jim Souter.
Branded for lifestyle
The increasing proliferation of brands also contributes to defining the sector. Those owned by major hotel groups such as Marriott Executive Apartments and Residence Inn, IHG’s Staybridge Suites, and Accor’s Adagio and Adagio Access have the advantage of sailing under the banner of their well-established parent company name.
Bridgestreet jumped on the brandwagon in January and re-flagged as Bridgestreet Global Hospitality, dividing its portfolio into six brands. “Brands give an identity to a range of options,” says managing director of international operations, Shaun Hinds. “And it helps tackle commoditisation – with corporate clients asking for pricing for one- or two-bedrooms, or studios, branding adds definition. Not all apartments are created equal, and it is critical for differentiation.”
The Ascott has three major brands. “As long as consumers can see the distinctions between brands, they will understand the price points and service levels that come with those, which helps them choose,” says country general manager Rebecca Hollants van Loocke. “And for us it is a way to adapt our product to what the consumer is looking for.”
This resonates with Steve Thorne’s views. Thorne is sales director at Grosvenor House Apartments by Jumeirah Living. “It is important to ensure the brand is the
right one for the location you are in,” he says, and adds that Jumeirah has turned down locations that don’t fit the brand profile – as have Marriott, IHG and Bridgestreet.
Interestingly, now that the latter has a branded portfolio, Bridgestreet’s director Paul Rands said he “rejected sites last year that we are now looking at again”, speaking at this year’s Serviced Apartment Summit, where brands were forensically analysed. “The brands give us wider scope in where we might look at being located.”
Go Native would only consider creating sub-brands if it would add value to the guest experience. “We have observed too many large hotel groups create sub-brands then revert back to the master brand with no benefit to the guest. In a lot of cases it only creates confusion,” says CEO Guy Nixon.
And it is not a panacea. “A brand is not right for everyone all the time,” says Marriott Executive Apartments vice-president Loren Nalewanski. “In the serviced apartments sector, for most it is about tapping into global sales and distribution channels, which especially helps in down-time.”
Both the industry and individual operators rely strongly on corporate travellers to become advocates. “There’s a definite increase in requests from people who actually stay in apartments rather than those who book them on their behalf,” says Charles McCrow. And managing director of Marlin Susan Cully says: “We have promoted the brand through strength of product and operation. We have never advertised.”
The confidence generated by a strong brand also plays a part in attracting investment into the sector, something that has been sorely scarce to date.
“Property investors are looking for adequate returns on their equity investments and the serviced apartments sector needs to ensure there is adequate performance data available to benchmark a property’s performance against its competitors,” says chairman of HVS London Russell Kett.
Co-locating brands on a site appeals both to owners and operators because it enables operators to benefit from economies. IHG, Marriott and Accor have all done this.
Holiday Inn/Staybridge Suites at Westfield Stratford City was developed by Cycas Hospitality. “Building two hotels on one site saves developers’ money and maximises the value of the land,” says partner in Cycas, John Wagner. “The costs of undertaking a dual-branded hotel development are lower than investing in two standalone buildings: there is only one foundation, one roof and one set of emergency staircases; and you can share a central back-of-house team, with one laundry, one housekeeping, one maintenance and one security team, for example.”
He adds: “You can also expose guests to a new brand and turn short-stay guests
into ambassadors for the extended-stay hotel model when they are planning a longer trip. First-hand exposure to the home-from-home experience of a Staybridge Suites hotel is far more compelling than any website.”
North of the borderLocation is all and Edinburgh is on a roll. Infrastructure is a key indicator of a city’s strength and opportunity, and Edinburgh is doing the groundwork. The planned construction of a new community, Shawfair, on the outskirts of the city will create 4,000 homes and an equal amount of jobs. The development will be accessible by the new Borders Railway route, which will run from the Scottish Borders to Edinburgh Waverley, connecting to the national rail network.
In addition, expansion plans at Edinburgh airport will enhance national and international accessibility over the next five years. “This vast growth will bring more business, project work and investment in serviced apartments,” says Caroline Saunders of Silverdoor.
In fact, some say the city may be at risk of overdevelopment: “We probably would not go into Edinburgh,” says The Ascott’s Rebecca Hollants van Loocke. “It is a key location but it is probably slightly over subscribed.”
However, Bridgestreet gets a good mix of corporate and leisure business in the Scottish capital, and it is where Marriott opened its first Residence Inn in the UK. “Our hotel is in a premium location, in the Quartermile development, where there are more business demand generators,” says global brand manager Diane Mayer. The property had over 85 per cent occupancy in 2012/13, dipping to 79 per cent in 2013/14.
And in 2017, an Adagio opens with 146 units in New Waverly, in Edinburgh’s Old Town. “The city is booming and it is not just leisure business – it is an important hub, and occupancy rates of hotels are only a little behind London,” says Adagio director Vangelis Porikis.
Commercial director of The Edinburgh Collection, Ricky Kapoor, gives an insider’s view. “Although the serviced apartment sector in Edinburgh is well established, with a much more mature base than most other UK cities, it is still witnessing unparalleled growth in both supply and demand,” he says. The company is about to reconfigure Holyrood Apartotel to increase the number of apartments from 47 to 67, by creating a more even mix of studios and two-bedroom apartments.
Other hot spots
Outside Europe, the Middle East’s Gulf states are also undergoing lively expansion partly thanks to an abundance of funds, which is being invested in hotels, offices and shopping malls. “Countries in the region are selling their resources, and are taking the view that it is better to make the investment while they have gas and cash,” says The Ascott’s area head of development and operations, Sym Lee.
These states are variously transforming themselves into leisure, finance and sports centres, to attract people in the future. Dubai is the leisure and transportation hub of the region. It is hosting Expo 2020 and will add over 45,000 hotel rooms in the next five years.
“Today, return on investment in the region is higher than in Europe, and more domestic travel will generate a requirement for accommodation – and the real estate and the land are available,” says Lee. “The serviced residences concept provides extensive opportunities as an alternative to hotels because the sector is understood. We are working hard to find a partner in the region to create Ascott branded properties.”
And Latin America is displaying a characteristic vibrancy. “We identified this area a while ago as a market with a high corporate demand, with Brazil in the lead, where we have an office managing the destination locally,” says TAS’s Charles McCrow. “To address this, we now have a strong supply network in the region.”
But serviced apartments are in short supply and the market is dominated by local providers, some of whose stock is less than appealing. “Trusted, on-the-ground representation is critical for corporates considering housing their personnel in serviced apartments in this region,” the GSAIR advises.
And remote locations, such as those where oil drilling and mining sites are, can have even lower levels of supply. “Creative thinking is essential – research and discussion with local services make all the difference,” says McCrow.