Event review: serviced apartments prominent at HAE 2019

George Sell By George Sell
Uploaded 13 February 2019

Serviced apartments were again high on the agenda at the Hotel Alternatives Event, which took place last week in London. George Sell reports.

The Leaders' Perspective session had a healthy representation from the serviced apartment sector. Panellists were Brian Welsh, chief executive, Nido Collection - Round Hill Capital; Andrew Ovey, head of healthcare, AXA; John Philipson, COO, Cheval Collection; and Simon Walford, development director UK, Staycity.

Walford discussed a shift in strategy for Staycity, which has quite a strong presence in regional UK cities. "The regions will be challenging next year," he said. "In the UK we are very much focused on London. The regional cities are tough, both with regards to REVPAR and when doing property deals. We are focused on high REVPAR cities and we see growth opportunities primarily in London and Germany."

Walford added that the tough times being endured by UK retailers has led to a considerable amount of potential deals being offered to accommodation stayers such as Staycity: "We have been looking at a lot of retail units, which were formerly occupied by the likes of BHS and Debenhams, but converting them is not easy and the cost works out about the same as a new-build."

On the potential consequences of Brexit Walford said: "If there is a significant decrease in property values due to Brexit, then we want to be in position to take advantage of that. Whenever there is a downturn in London, foreign money pours in - and we should be ready to be part of it. Germany is tough, the market is possibly starting to overheat as everyone wants to be there, and this could be down to Brexit."

On a point of definition, Walford said Staycity is "a hotel company - we have morphed from a serviced apartment company".

Cheval's Philipson said the company has projects in the pipeline in Europe and is looking at cities including Geneva and Frankfurt, while noting the significant increase in technology companies coming up with solutions aimed specifically at the serviced apartment sector.

A Battle of the Brokers session featured three brokers, each putting the investment case for a particular sector. Serviced apartments were championed by Ed Fitch of Cushman & Wakefield who described them as "the right product for the modern consumer and well placed to meet the rise in 'bleisure' demand."

Fitch claimed that serviced apartment operating margins are "45 to 65 per cent higher than hotels, with much less labour needed to run them - which is important as recruitment is the biggest single issue facing the entire hospitality sector".

He pointed out that there is not yet the same level of sophisticated yield management in the sector when compared with hotels, but saw this as a plus point "as it is coming". Fitch predicted that yields in Europe will "eventually normalise in a sweet spot between residential and hotels, as it has in the Asian market".

The case was also put for the self-storage and hostel sectors, with serviced apartments narrowly defeating the former in an informal show-of-hands vote among attendees.

A Debt Panel saw four lenders quizzed over which hotel alternative asset classes they feel most comfortable lending to. Martin Smyth, executive director at Coutts opted for aparthotels and care villages as his top choices, with others mentioned including student housing, co-living, senior living and caravan parks.

Bob Silk of Barclays warned of the dangers of high LTV loans on hospitality assets: "The V in LTV is a function of earnings and it can go down as well as up. If you want to borrow 90 per cent LTV you may find that you don't own your asset for very long." He also described ground rent schemes as a "euphemism for sale and leaseback, debt by any other name".

Adrian Parkes, CEO of the Guild of Travel Management Companies, discussed the latest trends in business travel. He said: "The plethora of three - and four-star hotel brands is causing boredom among corporate travellers, leading to demand for something different from travel programmes. With all these brands, it is very difficult to communicate what they stand for and what they offer. Corporate travellers are either looking for privacy - which a serviced apartment can provide - or a lively environment where they will have a memorable experience."

He added: "Serviced apartments are a really serious competitor to hotels. If they start getting themselves on to RFPs, they could start winning high volume city centre corporate business from hotels."

On the subject of Airbnb, Parkes said: "It is difficult to build Airbnb in to a corporate payment structure. Clients would usually only go ahead and book through Airbnb and similar platforms if it was done through the same structures and systems as usual."

A session called Corporate Accommodation and the Leisure Traveller again saw the serviced apartment and extended stay sector well represented, in the case by panellists Christoph Hager, head of European expansion, Zoku; Asli Kutlucan, senior partner - development & acquisition, Cycas Hospitality; Christabelle Morgan-Desouches, international hotel development, Aparthotels Adagio; and Jouke Baaima, director, Corporate Housing Factory.

Kutlucan claimed that "customers are much better educated about the variety of extended stay products and they are able to decide which is the right one for them".

For the second time in the day, the increasing sophistication of revenue management systems was discussed. Morgan-Desouches said: "Investing in technology enables Adagio to increase the guest's average spend by upselling various offers and more effective distribution."

Kutlucan added: "An experienced revenue manager will achieve the right balance of transient and extended stay guests. Our revenue managers use algorithms for each location to achieve the best REVPAR and the best GOPPAR - they take it to a scientific level."

She also mentioned that the demise of retail in the UK will lead to some interesting fusion and mixed-use urban developments featuring hospitality, co-working, F&B, self-storage and residential elements.

Morgan-Desouches pointed out the rise of dual-branded properties, revealing that half of Adagio's European pipeline is made up of dual-branded projects.

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