Serviced apartments have, in the estimation of the experts, barely captured two percent of the global hotel market. Moreover, there are no uniform standards, and no single brand name for these hotel establishments geared to long-stay guests. Yet this is no reason to underestimate the segment, and doing so would be a mistake. Its small market share also means there is strong potential for growth. This has evidently also been recognised by property investors, as shown by the first two hotel investment surveys jointly initiated by online specialist magazine “Hospitality Inside” and Union Investment. In the first survey conducted at the end of 2013 serviced apartments were acknowledged as offering the greatest potential to develop into an investment product. One quarter later, at the start of 2014, the second survey’s results again underpinned the importance of the quiet newcomers: asked which hotel segments are likely to offer the highest returns, some 44 percent of the survey’s participants named budget hotels, followed in second place, at 21 percent, by serviced apartments. The biggest operators worldwide include, first, the serviced apartment specialists and, second, the hotel chains.
Adagio of Accor, Citadines of Ascott, as well as Adina Apartment Hotels from Australia, which specialises in this segment, are playing a major role in Europe at present, whilst Derag Livinghotels from Munich is Germany’s biggest national specialist operator. In addition, there are a number of smaller operators with a few or only individual establishments; the full diversity of this young segment is reflected, for instance, by the German and English language online platform www.apartmentservice.de currently offering over 12,000 units worldwide. The top locations for serviced apartment operators are – at least at present – cities: business travellers were the first to discover this alternative to the hotel. Since the pharmaceutical industry, for example, issued within its travel policy a code banning its senior executives from staying in luxury hotels, the debate about the compliance framework has increased. The effect has been that top managers no longer stay in top hotels but in discreet luxury apartments. That way they elegantly sidestep the hotel star discussion.
A trying search for uniform standards
But who are allowed to call themselves serviced apartments? Just a glance at the brand names cited above is enough to cause confusion: Accor describes its Adagio properties as aparthotels, with Ascott doing the same under its Citadines brand. Adina, on the other hand, refers to Apartment Hotels, whilst Marriott markets its extended-stay establishments under the Residence Inn brand, and Derag has added the lifestyle concept Livinghotels to its trading name. In current industry discussions the recommendation is beginning to emerge that the name should always contain the word hotel – in order to demonstrate that a service (similar to that in a hotel) is being offered and to distance the establishment clearly from conventional boarding houses without service. In Germany, according to a survey conducted by the Australian operator Adina, aparthotels currently make up less than 1 percent of the accommodation market. This leaves plenty of room for establishments and operators. Marriott found out from its own study that 36 percent of all overnight stays have long-stay potential – meaning they last for longer than five nights.
market share is not yet being achieved by serviced apartments worldwide.
But who exactly is the target group and to which locations is the expansion strategy heading? The target group example shows that both normal hotel guests and long-term guests, as well as leisure travellers, can get enthusiastic about serviced apartments. A superior level of comfort, a kitchenette or full-sized kitchen and a range of individual, readily available services appeal to many people – even in rural areas. The operators’ location strategy is accordingly just as varied. In a three-hour industry debate in the autumn of 2013, Derag Livinghotels argued that a serviced apartment belonged not at a central station but in a residential area – Adina disagreed. Accor generally favours urban areas for its Adagio properties, Citadines, on the other hand, also sees itself located in holiday regions. Marriott no longer places its Residence Inns in the USA in the suburbs as it did initially, but is now more likely to opt for a city centre location. “That can only mean”, concluded Tim Düysen, Director of Marketing and Sales at Derag Livinghotels, “that in our reasoning we have to respond with great flexibility to our customers’ needs.” Those who do just that will generate loyal customers for their company, he adds. Supply and demand do not yet always come together in every case. A significant weakness in the new segment is demonstrated by the unsatisfactory standards in marketing. Companies and private travellers who are not familiar with the concept enter every search word they can think of into internet search engines – from holiday flat to property to short-stay accommodation, and so on – in the hope of finding a serviced apartment. The problem is that very few are conversant with the specialised terms and brand names involved.
New quality seal
A survey conducted by Derag Livinghotels among 400 business travellers at Munich Airport confirmed this all too clearly: no-one would have entered the term “serviced apartment”. “We need a single name”, the operators demand. But they have not managed to agree on one yet. Nevertheless, a quality seal has recently come into force for serviced apartments: at the beginning of April 2014 the German Travel Management Association unveiled its “Certified Serviced Apartment” seal. Travel managers from companies which regularly book long-term stays act as inspectors. They answer 125 questions on equipment, security, services and the booking and billing procedure. In order to receive the certificate, operators must achieve at least 50 percent of the maximum score. Fourteen apartment hotels were certified in the first quarter of 2014.
of property experts believe the serviced apartments segment offers the highest yield potential, according to a recent hotel investment survey.
Less progress has been made by the plan to develop and communicate jointly defined characteristics for the sector in order to get property investors interested in the segment as well. Everyone would like to see this, but it is difficult to find a common benchmark if some define four or five nights as an extended stay, while for others this means upwards of 28 nights. The performance indicators are similarly heterogeneous: some companies measure the average revenue per available room (RevPar), others only the gross operating profit (GOP). Some alter their prices depending on the day of the week or room category, whereas others have fixed prices. Some charge a trade-fair markup, others do not. Only when there is talk of expansion can they all agree on one thing: pursuing a flexible strategy. Growth can be achieved both by building new properties or converting existing establishments; real estate ownership is just as conceivable as leasing agreements.
For property investors the biggest challenge may well be under-standing the young operators of serviced apartments who do not form a homogenous group. After all, their advantages over hotels are persuasive: apartment properties use up less space and do not need an expensive prime location; they can be operated with far fewer staff than a regular hotel, and (running) costs are much lower because guests are not arriving and leaving every day. Insiders know that the serviced apartment offsets the lower average room rate compared with a hotel usually through higher occupancy. The operators are currently working on a paper intended to provide investors with guidance. The results will be presented in October 2014 at the Expo Real property trade fair in Munich: on the first day of the fair the hotel conference will be inviting visitors to participate in its hospitality industry dialogue. The visiting public can already look forward to this.