New research from Jones Lang LaSalle’s Hotels & Hospitality team highlights the surge of development activity in the serviced apartment sector since the Olympic Games, and the growth in appetite for the sector in central London from the investor and development markets. Many apartments are either part of residential, hotel or mixed use developments, and while London is the most mature market in Europe, it is one of the smallest internationally.
There has been a surge of new openings due to high demand for short and long term accommodation and scarcity of serviced apartment accommodation stock, with five confirmed projects in 2013 and 377 units in the development pipeline. The conversion of secondary offices to serviced apartments could provide attractive opportunities for developers given that occupancy levels for serviced apartments stands at 85 per cent, higher than the hotel market level at around 81 per cent.
The research shows that trading performance is forecast to improve as better economic conditions drive corporate demand. Serviced apartments also tend to be more profitable from a management perspective due to less intensive levels of service and staffing which leads to lower payroll costs.
The sector is still at an early stage so development has been the primary way for investors and operators to gain a foothold in the market. However, a couple of recent acquisitions have shown attractive yields compared to other classes. Recent notable transactions include the sale of the Grand Plaza Serviced Apartments in Bayswater for £98 million in September for an yield of approximately 5.5%, and the Staybridge Suites Stratford which (including the Holiday Inn Stratford) sold for an estimated £64 million to Singapore based M&L Offshore Investments. The Circus Apartments, Canary Wharf, located adjacent to the Four Seasons are currently on the market, with offers invited in excess of £30 million.
Global hotel operators are focusing on growing their serviced apartment sector brands with examples such as Staybridge Suites by InterContinental Hotels Group and Residence Inn by Marriott.
Adam Wilson, Vice President in Jones Lang LaSalle’s Hotels & Hospitality team commented: “The outlook for the sector is positive because of limited supply, good profitability and high yields. Institutional and traditional residential investors have historically been the primary buyers of serviced apartments, but we are now witnessing specialist serviced apartment operators move into acquisition mode such as Ascott, Frazers and Cheval, which is driving pricing further.”
