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Serviced apartments occupy a unique space between conventional rental residential properties and hotels – studios or one-bedroom apartments are typically 15-30% larger than hotel rooms. One of the main advantages of such apartments compared to hotel rooms is the availability of a kitchen. They are rented out for both short-term (1-3 days) and long-term stays (90 days to 12 months). These properties have fewer services compared to hotels (e.g. meals are not always included). Separate serviced apartment buildings are known as apartment hotels. These properties can have gyms and conference rooms as part of their facilities.


Market volume

According to UK-based consultancy The Apartment Service, between 2008 and 2016, the global volume of serviced apartments more than doubled, swelling to 827,000 units worldwide. European countries account for a quarter of them.

According to HVS, over 10,000 serviced apartments will be built in Europe between the middle of 2017 and 2020. 37% of them will be commissioned by late 2017, 28% in 2018 and 25% in 2019. Each building has 18 to 300 apartments, and 120 apartments on average. The UK and Germany have the highest supply volumes (41% and 32% respectively).

Number of serviced apartments to be commissioned in Europe

Country 2017 2018 2019 2020 Total
United Kingdom 1,556 1,460 768 495 4,279
Germany 1,248 655 1,034 405 3,342
Switzerland 291 148 300 739
Ireland 111 190 192 105 598
France 224 347 571
Austria 162 99 261
Netherlands 175 175
Other 80 275 355
Total 3,847 2,899 2,569 1,005 10,320

Source: HVS

Transaction values in the serviced apartment and apartment hotel market are often not disclosed, just like the information on buyers and sellers. In Europe, prices start from €100,000.

Serviced apartment market transaction examples, 2016

Property City No. of apartments  Transaction value
(€, million)
Price per apartment
(€, thousand)
Buyer Seller
Staycity Hayes (Heathrow) London 269 39.5 147 Schroders UK Real Estate Fund Ballymore
Saco The Canon London 77 41.0 532 n/a LaSalle Investment
Go Native Shoreditch (future) London 178 101.8 572 Osprey Equity Partners Reef Estates Ltd, Sharma Family
Staycity Dublin Dublin 110 25.0 227 n/a NAMA
Staycity Birmingham Birmingham 170 24.8 146 Knight Frank RO Real Estate
Developable land Dublin 89 10.0 112 SACO Property Group n/a
Temple Bar Hotel Dublin 139 55.0 396 The Ascott Limited n/a

Source: HVS


Management

Almost every major hotel chain offers serviced apartments, often under a separate brand (e.g. Residence Inn by Marriott, Adina Apartment Hotels by TFE Hotels).

Branded residential properties lease at higher rates than unbranded ones. According to Colliers, the margin on a well-known rental apartment brand can start from 10–20% in the upscale segment and exceed 40% in the case of globally renowned luxury brands.

Most operators only manage apartments, but some, such as Go Native and Pierre & Vacances also construct them.

Like the hotel market, the serviced apartment market uses several business models:

  • Management agreement: the owner delegates apartment management to an operator and receives part of the profits.
  • Rental agreement: the owner leases apartments to an operator who pays a fixed rent (and optionally a profits interest).
  • Franchising: the owner pays a franchise fee, while the operator generates a constant loyal customer flow in exchange.
  • Facility owner-operator model

Many operators use several models simultaneously.

International serviced apartment chain operators

Company Business model Brand Presence Number (2016/2017)
of locations of units
Accor

(France)

Rental agreement, management agreement, franchising Adagio Europe, Brazil, United Arab Emirates,

Qatar

110 12,000
Mercure Australia Australia 58 >6,000
The Sebel Australia, New Zealand 16 >1,600
Suite Novotel Australia,

Asia,

Middle East,

Europe,

North America, South America

33 >4,100
International Hotel Group

(United States)

Management agreement, franchising Candlewood Suites United States 341 >32,300
Staybridge Suites United States 220 >23,900
Frasers Hospitality

(Singapore)

 

Owner-operator Fraser Residence Asia,

Europe, Middle East

13 >1,500
Fraser Suites Asia, Africa, Australia, Europe, Middle East 29 >5,000
Fraser Place Australia, Asia,

Europe

16 >3,000
Capri Australia, Asia,

Europe

8 >1,750
Modena Residence Asia 5 >1,100
Marriott

(United States)

Management agreement, franchising Residence Inn by Marriott United States, Canada, Europe, Middle East, Latin America 750 95,000
Marriott Executive Apartment Asia, Africa,

Middle East,

25 >3,300
TownePlace Suites United States, Canada 278 >28,000
Pierre & Vacances

(France)

Rental agreement, management agreement Pierre & Vacances Europe 226 >20,000
Maeva France 31 >2,200
The Ascott Limited

(Singapore)

 

Owner-operator, management agreement Ascott The Residence Asia, Australia, United States, Brazil, Europe, Middle East >45 >8,000
Somerset Asia, Australia, United States, Brazil, Europe, Middle East >80 >15,000
Citadines Apart’Hotel Asia, Australia, United States, Brazil, Europe, Middle East >95 >15,000

Source: websites, The Apartment Service, Savills


Occupancy and yield rates

Rental rates for serviced apartments are often 15–30% lower compared to hotels. This is one of the reasons why more and more tourists and business representatives are choosing this type of accommodation.

Serviced apartments often have higher occupancy rates (84% in 2016, according to HVS) compared to hotel properties in general (70% in 2016, according to Statista).

In addition, apartments offer more money-making opportunities. For instance, according to JLL, hotels yield from 5–6.5% in the UK, while serviced apartments yield 6.5–9.0%. The higher yield is due to a risk premium because of issues related to brand awareness and insufficient product information. However, according to analysts, these obstacles will disappear in the future, and yields may fall to 4–5% (an intermediate level between conventional rental apartments and hotels).

The net guaranteed yields operators offer to the end investors are usually lower. For instance, Adagio, Pierre & Vacances and RésidHome apartments in France offer 4% per annum, after maintenance and management expenses (excl. VAT).

According to JLL, serviced apartment operating expenditures average 40% of revenue compared to 60% for hotels for two reasons: most apartment hotels do not offer breakfast and clean the rooms weekly, not daily like in hotels.

Yields and operating expenditures for apartments, hotels and serviced apartments

  Long-term residential rentals Hotels Serviced apartments
Operating expenditures
(% of revenue)
20 60 40
Rental term (days) 365 1–2 1–365
Number of staff 1 administrator 1 staff member per room 1 staff member per 5 apartments
Yield (%) 3–4 5–6.5 6.5–9.0

Source: JLL


Investment prospects

According to PwC’s Emerging Trends in Real Estate: Europe 2017 annual survey, 39% of respondents deem the prospects for serviced apartment investments “good” while 29% deem them “very good”

According to a survey by PwC, serviced apartments are among the top 10 investment property types in 2018.

Analysts from international property brokers Tranio believe this segment is promising for investment, especially in markets with a price growth potential. Tranio is converting a building in Athens, Greece into an apartment complex with a local developer, and will rent out units on short-term contracts by the mid-2018. Investors can purchase one or more apartments ranging from 35 m² to 85 m² at €3,000/m².

This is a promising opportunity for the following reasons:

  • Residential properties have low risks and time expenditures: a Greek real estate management company is in charge of the lease and maintenance of the apartments.
  • Each apartment has a rental license for short-term stays.
  • Investors can yields of up to 7% by leasing the apartments via Airbnb.
  • When investing at least €250,000, buyers and all their family members are provided with residence permits that can be extended remotely every five years. There is no requirement of stay for permanent residency in Greece.

 

Top photo © belchonock/DepositPhotos

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About Author

George Kachmazov

George Kachmazov is the founder and managing partner of Tranio.com, an international real estate broker with a catalogue of 110,000 listings and a network of 700 partners in over 65 countries. He is a real estate and investment expert, as well as a keynote speaker at many national and international property conferences. George regularly contributes to print and online media with insight on real estate trends and advice for first-time investors.

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