Weathering the storm

The serviced apartment sector has seen positive growth and further expansion despite worrying economic times. Catherine Chetwynd reports

SERVICED APARTMENTS HAVE not suffered the extreme recessionary slow-down seen in the hotel sector. Occupancies and rates are up; lead times are improving, although not exponentially; and suppliers are looking to expand portfolios.

“Serviced apartments had a very good year in 2010,” says head of hospitality and leisure research for PwC, Liz Hall. “Staying in a serviced apartment is a cost-effective alternative to hotels for many corporates and the sector has been extremely resilient during the recession, with high occupancies, although there has been a trend for travellers to stay a shorter time.”

The Association of Serviced Apartment Providers (ASAP) reported in May 2010 that occupancies were 4 per cent up on the first quarter of 2009 in London, year-on-year, and the regional picture was even better, rising by 5 per cent. So far, in 2011, average room rates have increased by 7.5 per cent since 2010 in London and 10 per cent in the regions.

“Performance was no doubt helped by supply being constrained, both by the lack of good rental property coming on to the market, low construction because of the banks’ reluctance to lend and also by high residential demand, because people just aren’t buying or selling.” says Hall.

So people are staying in serviced apartments instead of buying or renting apartments. Extended stay properties (also known as aparthotels) do not get such rave reviews, however. There has been a slower pace of expansion than anticipated, although there are still new names coming to the UK, including a Marriott Residence Inn opening in Edinburgh in October, and a Staybridge Suites, in Stratford, east London, next year, in addition to properties in Liverpool and Newcastle. These two products are a hybrid between a serviced apartment and a hotel.

“Overall, it is a good time for operators, with the prospect of remaining this way until the end of the third quarter,” says Liz Hall. “However, there may then be some challenges, the main one being the constriction of supply.”

THE FIGURES

There is a definite buzz in the sector. SilverDoor has seen enquiry levels rise by 95 per cent year-on-year over the first six months of 2011 and the company has increased staff levels from around 35 to 55 people.

“We expect to hit 60 [members of staff] by the end of this year,” says managing director Marcus Angell.

BridgeStreet Worldwide has also expanded its personnel with the addition of two directors of development, one for Europe and another for Asia Pacific. Citybase Apartments has seen demand grow by more than 100 per cent in the first quarter of 2011, year-on-year; Select Apartments has benefited from a 30 per cent increase in turnover; average stay at Roomspace has increased from 80 to 122 nights; 196 Bishopsgate and Town Hall in London showed sizeable growth in 2010 against 2009, and again this year compared to 2010 (plus a 10 per cent increase in rates at 196). CityQuarters in Birmingham has seen occupancies “go ballistic” compared to the first quarter of 2011, when business “seemed to have dried up”, according to operations director, Stephen McCrory.

“A complete refurbishment finished in May this year and had a positive effect,” he says.

In Aberdeen, The Spires serviced suites is starting to see the levels of business from oil companies returning to those of three years ago; Glasgow is steady; and Birmingham is driven by events at the National Exhibition Centre (NEC) and National Indoor Arena (NIA).

“We have only 30 apartments in Birmingham and occupancies are around 70 per cent,” says The Spires’ national sales manager, Craig Duguid.

Staying Cool has seen its best year to date, which managing director Tracey Stephenson puts down to greater awareness among travel managers of the economic benefits serviced apartments offer over hotels. And the company is expanding its presence at Birmingham’s iconic Rotunda by 30 per cent this year.

DEVELOPMENTS

“ASAP has 44 members, representing 8,750 apartments”, says Joyce Cawthorpe, marketing representative. “It’s good to see many members expanding with lots of developments”.

So where is the main expansion happening? The City and Canary Wharf have several new and upcoming developments, among them City Apartments’ new 32-unit building on Cannon Street. “Business is booming and we opened these new apartments with no drop in occupancy,” says City Apartments director David Smith.

Clarendon Serviced Apartments is looking to expand in the next 12 months, especially in Canary Wharf and the City, and Skyline Worldwide is also looking for more accommodation in both areas.

There is activity in the regions, too. House of Fisher opened aparthotels in Basingstoke and Camberley, Stay City is opening in Edinburgh, and A Space in the City opened in Cardiff.

The Olympic Park is drawing attention and Go Native opens Pioneer Point at the end of this year. The two-tower, 300-unit development is the first build-to-let development of this type and scale.

“We have ambitions to open more of these”, says Go Native sales and marketing director, Ben Harper.

“We have the right to operate and manage it exclusively.” The company has 750 apartments in London and Edinburgh, and plans expand short stays to key cities in the UK, where occupancies are high and have created a spike in rates.

“Minimum stays are led by the locations that our apartments are in, especially Liverpool, Manchester, Jersey and Paris, where we run very similar occupancies and rates to hotels,” says BridgeStreet Worldwide vice president sales and marketing for EMEA, Jo Layton.

Elsewhere, Frasers Hospitality is looking to take on more of Europe. “We are actively looking to expand to other countries on the Continent, in particular Germany, which is the strongest economy in Europe, and there is little on offer from internal operators,” says Frasers’ COO for Europe and the Middle East, Guus Bakker. “We are looking at projects in Berlin, Frankfurt and Munich and hope to see positive results in the next six months.”

OLYMPIAN CHALLENGES

In theory, the Olympic Games should be providing countless opportunities for suppliers. In practice, phrases like ‘elephant in the room’ and ‘denial’ are the main responses in the serviced apartment sector at any mention of 2012. So much so, that marketing director of Select Apartments, Adrian England, has set up an online forum.

“We have put a questionnaire out with our sponsorship of the serviced apartment section of the Relocate website, which is aimed at buyers, and put up articles about what might happen [during the Olympic Games]. We are trying to get people to respond, to help them deal with the uncertainty around booking and supply apartments during the Olympics,” he says.

Attitudes within the industry currently range between ‘demand will go through the roof’ and ‘it will barely register a blip’, the latter resulting in a ‘fire sale’.

“Typically, if I go to a major operator and ask to book a number of rooms for next year, to look after corporate clients, their initial response has been, ‘if you will pay a price that will make us feel absolutely secure, then of course you can’, although some are beginning to quote provisional rates in response to group enquiries that are specifically related to the Games,” says England. Suppliers are waiting to see how high demand is over the Olympic period, rather than agreeing a price based on 2011 or speculation.

And England’s attempts to offer a more stable alternative also fall on stony ground. “Clients will not consider moving people out of the Olympic catchment area, where availability is easier, because they run into Congestion Charge issues,” he explains.

The City of London tends to fill up quickly, so it may not be an option, “although we may be able to persuade people to stay in Canary Wharf and use transport [to wherever they need to go] to make it work”, he says.

The Olympic syndrome will cause operators problems in the long run because the most efficient way to fill inventory is to book big business first and then fill the gaps with smaller bookings.

“If we are a long way away from critical dates, we don’t want to take a one-night booking because then we get a few nights either side, which can be difficult to fill,” England says.

“As we get closer to critical dates and we have taken bookings, we become more flexible and take more risks [booking a single night here and there].”

As well as worrying about business as normal, there have been tenders for Olympic team business, which will inevitably shake up stock and availability in the serviced apartment sector. The US and Jamaican teams will be based in Birmingham prior to the Games and a tender document went out from Buying Solutions to operators.

“It would not have worked for the majority of providers because you had to have a vast amount of inventory across the UK. The tender document showed a lack of understanding of how the whole market works,” says CityQuarters’ Stephen McCrory. “There is a problem when people ask for a huge number of rooms – I run 50 apartments in Birmingham – my core business would disappear.”

Head of marketing for Clarendon Serviced Apartments, Peter Morgan, did not respond to London Organising Committee of the Olympic and Paralympic Games (LOCOG) enquiries and his corporate clients are not giving much indication of what they want.

“There are no tactical or strategic conversations, although they are concerned about availability,” he says. “But we need to know what [our clients] requirements are, rather than shopping around and being forced to pay the market rate – and who knows what that will be. If you have the last room available in London, you are going to ask £1,000 a night.” But Morgan is not casting aspersions regarding the industry: “In general, in the serviced apartments sector, there will be reasonable pricing because you will stand out like a sore thumb if you are seen to be profiteering,” he says.

In addition, LOCOG is still holding on to a lot of capacity – another factor that clouds the picture. However, this impasse may be resolved once hotels have released their rates. “We will see a lot more activity and visibility in who is offering what availability,” says Morgan.

Breaking the mould in advanced demand is Frasers Hospitality: “Serviced apartments are an excellent solution, especially for crew and TV teams and journalists who are going to cover the Olympics and pre-Olympics,” says Guus Bakker. “We have seen clients trying to secure accommodation, particularly in Canary Wharf.”

However, operators and agents are adamant they will look after their long-term customers during the Games, rather than succumb to making a quick buck.

SERVICE ETHIC

One of the benefits of staying in a serviced apartment is the services offered. Select Apartments’ Adrian England explains: “Serviced apartments are somewhere to live, not somewhere to stay, whether guests are staying for six months or a week,” he says. At the top end, Cheval Residences is looking at introducing a higher quality of service and facilities on the 10th floor of its Gloucester Park property in South Kensington. Premium services will include high thread-count Frette sheets, better beds and toiletries, and services such as massage.

“We will start with one floor and see how it goes,” says director George Westwell. The price for this upgraded service has yet to be announced. Guests at CityQuarters may arrive to find a stocked fridge or a bottle of wine. “We offer way more flexibility than we used to,” says Stephen McCrory. “If people say, would you mind doing that – getting housekeeping staff to pick up something on Monday morning, for example – we will do it. Anything we can do, we will.” Added extras would usually be charged for but this is now seen as added value.

Similarly, SACO has expanded its welcome pack so that there is enough food in it to make breakfast, and has also launched a quarterly publication, The SACO Kitchen, with simple recipes. Jogging routes are provided in key locations “and we are upgrading audio equipment in the apartments to provide iPod docking stations”, says sales and marketing director Jo Redman. Training is also taken care of with bespoke programmes “to ensure our reservations teams provide the amount of support and detail each booker requires”, she says.

Skyline Worldwide offers a welcome pack of tea, coffee and wine in a basket, and a toiletry-filled sponge bag in bathrooms. “We want everyone to be able to arrive with only their clothes in a suitcase,” says James Swift, Skyline’s business development manager. Staff training has also been a focus to improve service standards.

A recent reorganisation at The Apartment Service (TAS) has provided separate teams for corporate business development and sales and agency business. “These teams now have dedicated training and knowledge to better service corporate and agency clients,” says TAS marketing executive Bard Vos.

And reservations service Accommotel is launching its Apartments Direct Programme, positioning the company as a consultant to both supplier and client. The programme will allow corporate clients to access non-commissionable best available rates for a fee.

TECHNOLOGY

With mobile apps flying around the industry and multiplying at the rate they are, it’s no surprise the savvy serviced apartment sector has its fair share of them. Cheval Residences has launched an iPhone app. Director George Westwell says: “We have an individual app for each property and, if you search Cheval Residences, you can find floor plans, rates, pictures, special offers, info on what to do out-and-about and so on. We had an enquiry from Brazil recently that came through the app and was worth £25,000.”

The next development will be an iPad app with special features, which is due to be available in September. Meanwhile, a redesign of Cheval’s website is under way to make it more user-friendly.

Other suppliers have also got in on the app act. SilverDoor launched an iPhone app in December.

“There has been a push within the corporate travel market to provide other ways of sourcing inventory and there is a move to change the way we handle mobile stuff – the app is now accounting for 10 per cent of internet traffic,” says SilverDoor’s Marcus Angell. “We have had 556 downloads through the app, which is a reasonable amount for something that is new.

We are also looking at modifying the app for other Android tools.”

Furthermore, the company is planning a mobile website for a May 2012 launch, and Citybase also has one in development.

BridgeStreet Worldwide launched a mobile app for the iPhone in March, which has “increased activity through our website”, according to Jo Layton.

In other technology areas, Go Native is making the booking process fully automated, and Citybase Apartments has seen the benefit of direct online sales channels, such as Expedia and laterooms.

“Due to their popularity, we are finding that most apartment operators have simplified their terms and conditions to the point where booking is now as simple as booking a hotel,” says Citybase Apartments’ head of sales and supplier management, Richard Lovelock.

“This is music to the ears of corporate buyers, who do not have time for unnecessary formalities.”