Investment in serviced apartments is on the rise, with the UK market proving particularly attractive. In a ranking of 26 real estate sectors, serviced apartments climbed from 16th place in 2022 to ninth position in 2024, according to the Emerging Trends in Real Estate: Europe 2024 report by PwC and ULI.
“Investors and lenders have shown increased interest in the serviced apartment sector due to its higher profitability, strong trading performance, and resistance to inflation,” said Clemence Sennavoine, senior associate at HVS’s London office in a recent research paper.
Strong interest in the UK was underlined by NUMA Group’s acquisition of the lifestyle brand Native Places from Native Holdings in July 2024.
Native Places operates across the UK under two brands: Native ApartHotels, present in London, Manchester, Edinburgh and Glasgow, and The Apartment Collection, with ten locations in London. The portfolio comprises 800 units, which increased the overall NUMA portfolio to more than 7,300 units in Europe.
In July 2024, Staycity Group announced the acquisition of a former three-story office block near Battersea Power Station for conversion to a new 177-unit Wilde Aparthotel. Staycity plans to secure funding for the £70 million development once planning permission is granted, taking an operational leaseback.
Other single asset UK transactions include Native Bankside, a 75-unit property in London sold to Jastar Capital for €46.7m; and the 106-unit Aparthotel Adagio Stratford, sold to Stratford 42 Celebration Avenue Ltd, for €37.7m. In 2022, the NH Kensington Hotel was sold to Edyn Group for conversion to serviced apartments.
Growth opportunities are primarily found in conversions due to limited capital for new builds and high debt and construction costs, said Sennavoine.
Previously seen as risky, conversions are now more attractive due to increased office vacancies and lower prices per square metre. Trends in conversions are influenced by existing architecture, market demand, and a desire to diversify offerings. Some serviced apartments are incorporating co-working and community spaces to meet new expectations.
The rise in costs has led to new brand models that offer all the amenities of serviced apartments in smaller spaces. As real estate prices rise and serviced apartments attract more short-to medium-term leisure stays, brands are creating smaller units to improve ROI, especially in central locations.
HVS analysis of around 9,000 serviced apartments across Europe revealed that occupancy increased by 2 per cent between 2022 and 2023, along with a 13 per cent increase in average rate. This resulted in a 15 per cent growth in RevPAR
Looking at current UK supply, there are more than 56,700 serviced apartments, says the Association of Serviced Apartment Providers (ASAP). Among them, 28,566 properties are managed under a professional brand. The other half of the market is particularly fragmented and comprises a long tail of independent operators and ‘single key’ offers.
England accounts for 87 per cent of all serviced apartments in the UK, followed by Scotland (9 per cent). At 3 per cent and 1 per cent, respectively, Wales and Northern Ireland are yet to develop a more sizeable supply.
London constitutes the largest proportion of the market supply and accounts for 12,867 serviced apartments (45 per cent of the total supply in the UK). Manchester, Liverpool and Edinburgh follow with a 6.3 per cent, 4.8 per cent and 4.4 per cent market share, respectively.
Looking at the European branded pipeline, HVS reports that 12,600 serviced apartment units are expected to open over the next four years, with Germany and the UK leading the way with 27 per cent and 17 per cent of the total pipeline respectively.
Despite being the city with the most branded serviced apartments, London continues to be the top development location with 27 per cent of the UK pipeline, followed by 16 per cent in Belfast, 12 per cent in Glasgow and 10 per cent in Cambridge.
The sector is an important contributor to the UK economy, says the ASAP. In 2022, branded serviced apartments generated a turnover of £1.2 billion. Including the ‘single key’ operators, the total value of the sector extends to £1.7 billion and the sector directly supports at least 6,050 jobs.
Catering to a specific blend of customers, business travellers comprise the largest share (45 per cent), followed by tourists (27 per cent), and professionals relocating to the UK (23 per cent). Serviced apartments are becoming an increasingly popular choice for tourists and leisure travellers who prefer self-contained accommodation over a standard hotel room, and value the sector’s standards compared to Airbnb and other short-stay options operated by private hosts.
The average length of stay in 2022 was three days according to the ASAP; however, 11 per cent of customers stayed between 30 and 89 days and 6 per cent stayed longer than 90 days.
Sennavoine commented: “The newest serviced apartment products tend to target more leisure demand which shortens the length of stay and impacts operational efficiencies.”
“The line between hotels and serviced apartments is getting blurred. In the future, this may soften the aspects that gave serviced apartments an edge over hotels, by increasing operational costs and reducing insulation from inflation and overall profitability. “But for now, the sector has the wind in its sails and the confidence of investors,” she said.
By Ben Walker
