Katten launches serviced apartment networking group

George Sell George Sell Uploaded 05 March 2018


UK: International law firm Katten Muchin Rosenman has launched a series of quarterly networking meetings for serviced apartment professionals.

The first meeting, hosted by Katten's Diane Scott at the company's City of London offices, featured a panel discussion which covered many of the pressing issues currently affecting the sector.

The panellists began by highlighting how far the sector has advanced in recent years, particularly in terms of investor awareness and understanding.

Asli Kutlucan, director of development and acquisition at Cycas Hospitality, said: "We have spent the last 10 years knocking on doors, especially those of investors, to promote the concept. It was more or less unknown at first but now we are seeing the fruits of our efforts."

SACO's Eric Jafari - fresh from the completion of Brookfield's acquisition of the company the previous night - said that investors have picked up on the undersupply of serviced apartment inventory in Europe, and the industry is working to meet the demand that is undoubtedly there.

Cheval Residences director George Westwell predicted that a surge in franchising by the major hotel groups' extended stay brands will see a significant expansion in supply.

It didn't take long before the subject of Airbnb was raised. Jafari said that the sharing economy platforms are responsible for creating a fresh market sector: "In cities which have tried hard to curb Airbnb activity, there has been no increase in hotel business. This says to me that Airbnb is opening up a new demographic which serviced apartments can tap in to."

Recent research from Savills has shown that the UK market will gain an extra 2,000 units during 2018. West well said that 2,000 is "a small number compared with Airbnb. The market will absorb them quite easily."

Jafari predicted that "Airbnb will eventually have to go down the stratification route, like the main OTAs have, in terms of star rating and price. Airbnb is still sometime like a lottery in terms of quality and experience, but they will figure that out." On the subject of OTAs, Westwell said: "OTAs are going to be squeezed by the likes of Airbnb, Google and Amazon. They will have to reinvent themselves or risk disappearing."

Discussing Brookfield's acquisition of SACO, Jafari said: "Brookfield is banking on the Locke brand. We want it to be the go-to extended stay lifestyle brand in Europe. Airbnb has opened up new opportunities but a lot of people are still reluctant to give up hotels. Brands such as Locke offer the best of both worlds. Brookfield has bought SACO for £430 million and wants to scale it to a £1.5 billion business." He added that the chief design principle of Locke is to "make it Instagrammable".

The discussion moved on to F&B. Kutlucan said "fashion and trends in F&B change fast it's impossible for a hotel to keep up. Extended stay should avoid F&B." Jafari said: "F&B itself isn't a massive profit centre but the experience it provides is. Our third-party F&B outlets drive the Instagram experience and most REVPAR. These operators should be achieving 70 per cent of their trade from walk-ups and 30  per cent from the hotel."

While the general tone of the discussion was positive, the panellists warned that some level of economic correction was inevitable and that not all serviced apartment operators are in a position to survive that. Kutlucan said: "The next five years will see a shake up and we will see which operators are adapting to the true extended stay model, and who is mainly catering to transient/party/stag and hen business - these are the first markets to go down when the economy slows."

Jafari agreed: "There will be a 'cleansing' soon. Some companies will merge, some will be wiped out. There are a lot of unsustainable leases out there, especially in the mid-market. But we are just at the beginning - an ecosystem will emerge, including PRS, resi, serviced apartments, co-working, co-living and so on, things are becoming much more fluid."

Katten is a Gold Sponsor of Serviced Apartment Sumit Europe, London, July 10 and 11.


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