hotel · investments’ recent acquisition of oakwood is expected to further strengthen certain...
TRANSCRIPT
Residence Inn Kensington (Opening Q4 2017)
HotelQuarterly Bulletin
Q3, 2017
O p t i m i s m i n t h e U K S e r v i c e d A p a r t m e n t S e c t o r
In 2017, the supply of serviced apartments and
aparthotels will witness a year of phenomenal growth
for both London and regional UK, with supply
forecast to grow by 10% and 10.4% respectively.
The serviced apartment sector is one of the fastest
growing sectors in the UK, with a compound annual
average growth rate of 6.8% per annum between
2013 and forecast year end supply 2017, with the
total units rising to over 21,500 units.
With supply in London set to increase by over
1,000 units, London’s share of the market is set
to rise closer to its five-year average of 53%, with
supply growth in regional UK having outperformed
the capital in 2016. Edinburgh, Manchester,
Liverpool, Birmingham and Aberdeen are the top 5
regional cities, accounting for approximately 5,000
serviced apartment units, representing 24% of the
total supply.
During the past few years the serviced apartment
sector has gained significant momentum in terms
of development and branding. Alongside a number
of specialist extended stay operators, the rollout
of the extended stay concept by a number of the
global hotel operators, has reinforced the sector’s
position as a mainstream asset class within the wider
hotel market. To date, international branded supply
accounts for 40% of the serviced apartment stock in
London and 30% in regional UK. Significant scope
for consolidation exists, with the market remaining
highly fragmented, with a plethora of regional brands,
representing 20% of the UK market.
100%
Nu
mb
er o
f u
nit
s
Ave
rag
e si
ze
80%
60%
40%
20%
0%
Other UK City
Manchester
York
Bristol
Number of Apartments Average Apartment Size
Birmingham
Edinburgh
Aberdeen
Liverpool
London2
01
3
Staycity
20
17
Citad
ines
Locke by S
AC
O
20
15
SA
CO
Prem
ier Suites
Due 2
01
8
Cheval R
esidences
Go N
ative
20
14
Marlin A
partm
ents
Room
zzz
Due 2
01
7
Living by B
ridge S
treet
Macd
onald H
otels
20
16
Stayb
ridge S
uites
Ad
agio
Due 2
01
9
Sp
eculative
New Supply by City 2013-2019 (Units)
Leading UK Serviced Apartments Brands (as at September 2017)
1,600 160
120
80
40
140
100
60
20
0
800
1,300
400
1,400
600
1,000
200
0
London leads the way in the supply boom of the UK serviced apartment sector – evidence that the sector is fast becoming a mainstream competitor in the UK hotel market.
The UK Serviced Apartment Sector
As the sector continues to grow, competing brands
will contribute to the heightened blurring of a
traditional serviced apartment and a select service
product. Brands will increasingly seek to develop
their distinctive style and personality, through the
design and product offering. Whilst offering the
comfort and space of a home-away-from-home
product remains at the core, evidence exists of
operators becoming more creative in terms of
product offering with self-service communal dining
areas and enhanced in-room technology becoming
increasingly the norm.
The sector is set to expand by 21% between 2017 and 2020, equating to approximately 23,500 apartment units. 900 new apartments have opened to September YTD 2017, with a further 1,000 apartments forecast to open by the year end.
Of particular prominence is the acceleration of
growth planned by the existing operators, with
approximately 2,000 branded apartments scheduled
to open by the end of 2019 and a further 2,000
units in the pipeline. For example, luxury apart-hotel
operator Roomzzz have an extensive pipeline of
seven UK developments, some 650 rooms in city-
centre destinations nationwide. Meanwhile, Cycas
Hospitality continue to foster partnerships by signing
their third deal with Marriott, continuing the trend to
operate dual-branded hotel projects, with the signing
of a 92-room Residence Inn and 144-room boutique
Moxy hotel, to be operated under a single lease
agreement in the same building.
Operators such as Staycity, Cycas Hospitality,
Roomzzz and Go Native are some of the most active
players in the market and will likely become pan-
European extended stay specialists in their bid to
achieve ambitious development plans. The launch of
new innovative brands, are becoming an increasingly
common occurrence, meanwhile consolidation
amongst international operators, such as Mapletree
Investments’ recent acquisition of Oakwood is
expected to further strengthen certain established
global brands in the UK and European market.
Roomzzz Manchester City (individually designed aparthotel, 59 apartments)
The basic premise of an apart-hotel product is
that with a longer average length of stay, the
impact of room vacancies is reduced. Based
upon data provided by STR, the RevPAR
performance for a sample of London serviced
apartments achieves a significant uplift in
performance compared to a sample set of London
upscale and upper upscale hotels. This enhanced
performance is achieved through strong occupancy
and a significant premium in the average room rate.
In particular, serviced apartments benefit from the
high yielding corporate market and stability
throughout the entire week in the average daily
rate achieved.
With specialist operators’ willingness to offer
leases, combined with the perception of improved
covenant strength associated with increased brand
awareness, and the sector’s high margin / low cost
operating model having the potential to generate
attractive income and capital returns, combined
these factors serve to deliver increased investment
appetite from institutional and private equity
investors seeking to diversify their portfolios.
To date one of the biggest barrier to institutional
investment in the sector has been a lack of sizeable,
purpose built stock. As such, the growing trend for
institutional investors to participate in forward funding
transactions or commit to development opportunities
is expected to continue in order to benefit from a
high yielding return post development.
Nevertheless, the opportunity to build a scalable,
recognisable and established brand, with the
forthcoming disposal of SACO, the UK’s second
largest extended stay operator, is expected to result
in a new wave of investment activity and interest in
the sector. Furthermore, with specialist operators
such as Go Native exploring a diversified operating
model in order to underpin long-term value creation,
the opportunities presented through the embryonic
Private Rental Sector and Build to Rent Sector are
significant and expected to further enhance the
sector’s investment appeal.
Source: STR
Staycity
SACO
BridgeStreet Global Hospitality
Cycas Hospitality
Ascott Group
Marlin Apartments
Frasers Hospitality
Go Native
Nadler Hotels
Roomzzz
PREM Group
Accor HotelServices
Existing Stock 2017London Upscale &
Upper Upscale Hotels
Total Pipeline 2017-2020Serviced Apartments
– London
SpeculativeServiced Apartments %
RevPAR uplift
Top UK Serviced Apartment Operators
Rev
PA
R £
Ser
vice
d A
par
tmen
t
% R
evP
AR
U
plif
t
RevPAR Performance London Serviced Apartments v London Upscale & Upper Upscale Hotels
2015 2016 July YTD 2016 July YTD 2017
180
160
60
140
40
120
20
100
0 24%
26%
25%
27%
28%
29%
30%
31%
32%
80
Staycity Aparthotels London Heathrow
0 500 1,000 1,500 2,000 2,500
Julian Evans, FRICSHead of Healthcare. Hotels & Leisure
T: +44 207 861 1147
Alex Sturgess, FRICSPartner
T: +44 207 861 1164
Ian Elliott, FRICS Partner
T:+44 207 861 1082
Henry Jackson, FRICS Partner
T: +44 207 861 1085
Philippa GoldsteinHotel Analyst
T:+44 203 826 0600
Residence Inn London Bridge (Opened August 2017)
PEOPLE
418 OFFICES
60 COUNTRIES15,020 PEOPLE
PEOPLE
2,14585
OFFICES
1,035 80
OFFICES
PEOPLE
70023
OFFICES
PEOPLE
503
OFFICES
PEOPLE
5,61558
OFFICES
PEOPLE
OFFICES
5,475169
Continental Europe
16 Countries Austria / Belgium / Cyprus Czech Republic / FranceGermany / Ireland / Italy / Monaco The Netherlands / Poland / Portugal Romania / Russia / Spain Switzerland
The Middle East
2 CountriesThe Kingdom of Saudi ArabiaThe United Arab Emirates
Asia Pacific
14 Countries Australia / Cambodia
China / Hong KongIndia / Indonesia Japan / Malaysia
New Zealand / PhilippinesSingapore / South Korea
Taiwan / Thailand
United Kingdom
Africa
10 CountriesBotswana / Kenya / Malawi Nigeria / Rwanda / South Africa Tanzania / Uganda / Zambia Zimbabwe
The Americas
15 CountriesArgentina / Brazil
Canada / Chile / Colombia Costa Rica / Dominican Republic
Mexico / PeruPuerto Rico / The Caribbean (4)
USA
PEOPLE
© Knight Frank LLP 2017 - Knight Frank LLP is a limited liability partnership registered in England with registered number OC305934. Our registered office is 55 Baker Street, London, W1U 8AN, where you may look at a list of members’ names.