Operators seek new European markets for serviced apartments

YotelPad
In January, Yotel launched its extended-stay YotelPad brand. Photo credit: YotelPad

The serviced apartment sector in Europe is booming, with close to 20,000 new units planned during the next five years.

In a recent survey of serviced apartment operators, Magalí Castells and Arlett Hoff, associate and director (respectively) of HVS London, noted “impressive" increases in revenue per available room across the sector throughout Europe.

“Hotel operators are keeping an eye on the rising competition and the serviced apartment sector is getting more and more crowded,” the report noted.

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The survey, published in the report "The Serviced Apartment Sector in Europe: Alive and Kicking," reveals a growing similarity to the hotel sector with the use of hotel-inspired structures and operating models.

While operators say their biggest challenge is competing against hotels for central sites, growing demand for serviced apartments and increasing interest from investors has nearly doubled the pipeline across Europe.

Brands with a larger inventory tend to use management agreements over leases, Castells said, noting that the shift in operating models reflects the growing importance of using more dynamic structures that sustain rapid expansion.

The Effects

The growth of serviced apartments, and the increasingly crowded nature of the sector, has prompted some operators to revamp their brands. In January, Yotel launched its extended-stay YotelPad brand, with five deals for “compact homes” already signed for the U.S., Europe and the Middle East. 

The increase has also driven trendy brands like Cuckooz Nest, which provides co-working spaces with childcare, and Cotels 7Zero1 fitness-focussed serviced apartments. Staycity has launched a new premium brand for gateway city centers across Europe: Wilde Aparthotels by Staycity, reportedly inspired by Irish poet and playwright Oscar Wilde. The first Wilde opened this April in London, a Wilde is scheduled for Edinburgh, Scotland, next year followed by two properties in Berlin in 2019/20 and another in Manchester, England, in 2020.

According to the survey, the top three brands in terms of expansion are Adagio Aparthotels, Staycity and Saco. Adagio, the joint venture by AccorHotels and Pierre & Vacances, makes up a third of the total pipeline for expansion over the next five years.

“Last year marked the true consolidation of this industry, which has now found its place in the investor community,” Hoff said. “The continued positive trend demonstrates increased demand and need for this product type, as well as a growing interest from investors in this real estate asset class.”

Top Destinations

According to the survey, more than half of respondents are planning to open new properties in markets such as France and the Netherlands, with the U.S. and Eastern Europe starting to appear on the wish list. However, the majority of operators said they would like to focus their presence in the markets in which they already operate, such as Germany, the UK and Western Europe.

London remains the top location for developing serviced apartments in the UK, accounting for just under 40 percent of the country’s pipeline. Manchester is also popular, accounting for 25 percent. Germany was revealed as operator’s second country of choice when it comes to expansion, with the cities of Hamburg, Berlin and Munich mentioned as key locations. Some survey respondents said that they are now considering expansion into Austria and Poland. 

“We are seeing more management and franchise agreements in serviced apartments, rather like that of the hotel sector,” Castells said in a statement. “This is largely because these two operating models offer operators more flexibility, the ability to expand to readily and less risk.” 

Growing Plans

The European pipeline has more than 18,000 apartment units slated to open in the coming five years (HVS only disclosed projects that have been publicly announced), close to double the amount of developments announced a year ago. This marks a new record for the industry. A relatively small amount (16 percent) of the pipeline will open before the end of the year, more than a quarter should open by 2019, followed by 38 percent in 2020, 13 percent in 2021 and 6 percent in 2022. The size of the planned projects varies from 25 to 457 units, with an average of 134 units.