03/10/2018 by Paul Winder
Serviced Apartments and Seasonal Tourism
We've previously talked about the growing popularity of serviced apartments as an investment vehicle but now, with Halloween and other highlights of the autumn season fast approaching, it might be worth returning to the topic.
As with any form of property investment, the performance of serviced apartments varies by location, as well as by property type and a host of other variables. These details can make a big difference and should never be overlooked. However, as a general rule, such properties tend to command notably better nightly rates than those rented out under assured short-hold tenancies (AST). In mixed tenancy developments, it's
often the serviced apartments that generate the best returns for investors.
To see why that is, let's begin with a definition.
What is a serviced apartment?
A serviced apartment is essentially any furnished apartment that is supported by housekeeping and other services. Typically, visitors will pay a single fee that covers the cost of these services, plus the cost of any associated facilities, utilities and taxes. In these respects, the property offers something similar to a hotel-style experience and, in much the same way, a serviced apartment may be rented for short or longer periods. The comparison with hotels also typically extends to the availability of shared amenities such as gyms, swimming pools and concierge services. Unlike hotel rooms, however, serviced apartments tend to offer more space and they will usually feature a kitchen or kitchenette, so self catering always remains an option. This might go some way to explaining their growing popularity: visitors like the self-contained feel of serviced apartments and the freedom to come and go as they wish.
For visitors, serviced apartments are often a more affordable option than a hotel, and yet they will usually offer comparable quality, bigger rooms and fewer constraints.
In July 2018, the hospitality market data-provider HVS published the results of a survey that identified rapid Europe-wide growth in the serviced apartment sector, noting: "it is safe to say that investors and developers see true potential in the sector." It identified signs of what it saw as "an increase in awareness, security and transparency for the sector, as serviced apartments are starting to be perceived as an investor-friendly asset class."
Also during the summer, Knight Frank published research findings that pointed to a rapid and potentially disruptive expansion in the serviced apartment sector. It wrote: "The unprecedented growth in 2018 of the four-star and serviced apartment sectors... is set to challenge the market share of new rooms in the budget sector."
It seems clear that customers are responding very positively to the serviced apartment model, and market data now suggests that investors are doing the same. For investors, serviced apartments offer a number of important benefits. The most obvious of these is yield; so long as demand sustains healthy occupancy, higher nightly rates can translate into much better profits than those normally earned through ASTs.
But there are other considerations, too. By their nature, serviced apartments are routinely maintained - normally by a professional management agency - and they are pitched at tenants who want and expect a quality experience. As a result, they are generally kept in top marketable condition and they tend to suffer less from abuse than conventional lets. As a result, most problems can be dealt with quickly and at arm's length, and investors won't normally found themselves drawn into the day to day concerns of repairs, safety maintenance and rent collection.
One further attraction is capital appreciation. As noted earlier, the wider investment community is taking increasing note of the serviced apartment model. Growing demand for such properties could easily begin to support upward pressure on prices in the re-sale market.
Under most ASTs, rental returns remain largely unchanged throughout the year, subject only to some form of annual, inflated-related uplift. However, investors with serviced apartments that appeal to shorter-stay tenants can enjoy greater flexibility to change prices with the seasons. Just as hotels and airlines are wont to boost their prices in peak season, so investors can adjust their rates to maximise their returns. This is
especially important over traditional holiday seasons and other periods of high short-stay demand. These are periods that have little impact on AST-bound properties but which can deliver important boosts for serviced apartments. The end of September, for example, saw thousands of first-year university students moving to new cities for the first time. With them came droves of parents, many of them looking for comfortable, short-stay city accommodation while they helped their loved ones to settle in. This is just one instance of the kind of short-lived peaks in demand that give serviced apartment investors an opportunity to boost their yields, but there are many more.
In Manchester, the Business Improvement District team now hosts an annual two-day event called 'Halloween in the City', which it describes as 'retail’s fastest growing festival.' The 2017 event, which featured spooky street decorations, a 'trick-or-treat' trail, a 'Day of the Dead' style carnival and many other themed entertainments, saw visitor footfall increase by 10% across the BID district, and by 12% in the Arndale Centre. Retailers and accommodation providers reported that visitor numbers were up 19,000 compared to the 2016 event. Chair of Manchester BID, Jane Sharrocks, observed: "Halloween is now the third biggest retail event in the UK, with spend across the UK predicted to surpass the £320m mark this year."
Conscious of the autumn season's market potential, cities across Britain will be laying on spectacular firework displays and Halloween entertainments to lure in the crowds. And, of course, it's not just the retailers and tour guides who will benefit. Overnight stays rise dramatically over Halloween and Bonfire Night, and soon after that, the Christmas city shopping breaks begin.
For those with attractive, well-positioned serviced apartments to let, the coming weeks represent a great opportunity to capitalise on another period of high market demand.
Looking for more information on Serviced Apartments, be it to purchase, or to let out please feel free to contact Residential Estates on 01244 343 355 or email firstname.lastname@example.org