What's behind serviced apartment growth

The Quest King William South (Quest King William South)

Global hotel companies are taking advantage of the growing extended-stay market to open new properties in the UK. Australia’s Quest Apartment Hotels has signed its first British site in Liverpool, promising “aggressive expansion” after years of studying the country’s potential. And with New York-based Dream Hotel Group also due to share the site of its first UK hotel with a so-called “aparthotel,” the market looks ready for alternatives to traditional hospitality options.

In Liverpool, Quest is set to convert an office block into 100 apartments. The project, representing a £10-million investment, will open in 2019. Quest already has a portfolio of 160 properties across Australasian locations.

“Hospitality brands have a huge role to play in opening up city center locations for business again, but against a backdrop of economic uncertainty, it is clear that businesses want to spend travel budgets wisely,” Andrew Weisz, director of UK development at Quest, said. “We’ve immersed ourselves in the UK market in recent months and can see the potential for the aggressive expansion of both our brand and the apartment hotel industry here.”

In Birmingham, Dream Hotel Group will share its site with a 51-guestroom Stow-Away, a joint venture between Ciel Capital, developer Stow Projects and hospitality operator BridgeStreet Global Hospitality,

“Stow-Away is strategically positioned to plug the significant gap in the market between high-end offerings and low-quality product,” Dorothée Dembiermont, a partner at Voltaire Financial, which advised on the financing, said.

Funding has also been secured for a Stow-Away project built from shipping containers with a wine bar and restaurant on the ground floor. The 20-guestroom property is slated to open next October in London's Waterloo.

Ciel Capital CEO Vedrana Riley said the partners were pursuing opportunities in Manchester, Glasgow and Dublin, and hoped to build a portfolio of 10 assets over the next three years.

The Appeal of Aparthotels

Data on the aparthotel sector is not split out from the wider serviced apartment categorization, but growth is apparent. According to a study from HVS, the UK leads Europe’s pipeline of serviced apartments, accounting for 41 percent of the 10,000 planned units. While London is the top spot for development in the UK (44 percent of the UK pipeline), Manchester, Edinburgh and other regional cities will also see openings in the near future.

Extended-stay providers have previously targeted the UK for growth. Staybridge Suites, for example, launched in 2008 with its first site in Liverpool. Growth has been slow, with observers noting that, unlike the U.S., the smaller geographical mass of the UK means that there is less demand for extended-stay products from the business community when home is just a drive away.

What has changed is the way which extended-stay products are being used. HVS reported an increased focus on the short-stay market, which can help fill occupancy during the off-peak weekend period. The growth of Airbnb and its ilk has opened the transient leisure market up to the attractions of the model.

This has not gone unnoticed by the investment community, with Brookfield Property Partners reported to be holding talks to acquire Saco, The Serviced Apartment Company from Oaktree Capital Management for £430 million. Saco is planning double its current stock of 1,000 apartments to over 2,000 by 2020 and is eyeing European locations for further development.

Long stay is in for the long haul.

Katherine Doggrell is an editor at Hotel Analyst, the U.K.-based news analysis service for hotel investors.