After the serviced office comes the serviced apartment, where executives on long assignments can enjoy accommodation with cleaning and laundry provided. And, as the concept catches on, operators can clean up too. Elaine Knutt reports
On 1 March, two residential developments were launched in central London. King’s Wardrobe offers 63 luxury apartments on Ludgate Hill in the City, while 74-76 Princes Square boasts 36 equally upmarket flats in Bayswater. The 99 units demonstrate the confidence of their respective backers – US-based BridgeStreet and home-grown Crown Dilmun – in the once-overlooked serviced apartment sector.
The newcomers join a growing battery of stock that targets the gap between extended hotel stays and traditional short-term lets. Aggressively marketed to corporate staff parachuted into the capital for specific assignments (but also attracting independent tourists), London’s serviced-apartment sector is enjoying high occupancy rates – and high interest from prospective entrants.
That interest is understandable, given the relatively low barriers to entry, lower overheads than labour-intensive hotels, and potential margins from rental levels of £500-£1,000 a week for a one-bedroom apartment. “Demand from the corporates and the banking sector will increase, and a lot of people will be looking at the market,” says Peter Braithwaite, director of DTZ Debenham Tie Leung’s residential division.
Operators, naturally, prefer to highlight the complications. “It’s not like in/out residential development,” says Nick Sutton, managing director of Crown Dilmun, which has a serviced apartment operating subsidiary, Central Apartments. “Central employs over 100 people. It’s an operating business – you’ve got to provide services similar to a hotel.”
Fluffed-up sofa cushions
Ruth Jolly, UK general manager of US provider Oakwood, agrees it is a “nickel and dime business” where success depends on attention to detail. “The laundry needs to be crisp, clean and with no residual stains – and doing that costs money. We have the heating on all the time, and utilities aren’t cheap. We clean inside the bins, and fluff up the sofa cushions. It’s how efficient you are with the nickels and dimes that makes the dollars.”
Serviced apartments seem an obvious diversification for serviced-office providers, allowing them to offer 24-hour accommodation. But serviced-office market leader Regus decided three months ago to enter the market through a customer referral tie-up with Oakwood. “Customers get the added value of a single source of supply and one bill to settle,” says a Regus spokesman.
So far, no operator has established a universal brand identity, in contrast to the hotel sector. But this may change, says Gerard Nolan, director of hotels and leisure at FPDSavills. “There is an opportunity for someone to build a brand – get it right and they could make a lot of money.”
Nolan says serviced apartment profits are broadly in line with those of the hotel sector. A hotel achieves higher turnover thanks to its restaurants and bars, but profit margins are squeezed by labour costs to around 30-40%. Serviced apartments may have smaller turnovers but achieve higher gross margins – perhaps 50-60%. So overall returns are similar in the two sectors.
In the nascent investment market, FPDSavills’ data indicates yields of 6.5-10.5% – again similar to those of hotels. But serviced apartments offer an added advantage. A five-star hotel needs a five-star location, but equally luxurious apartments could happily be situated off-prime. “Guests are there long-term – they’re happy to travel two tube stops to work,” says Nolan.
Quoted occupancy rates also appear healthy. Oakwood reports 75% occupancy of its 99 homes and apartments in September-December last year. At Citadines, UK managing director Gus Bakker claims an annual peak occupancy of 91%, and an average of more than 80%. Central Apartments’ 76 units at City Pavillion in Clerkenwell have achieved 85% occupancy since their launch in December.
Although mainly a London phenomenon, serviced apartments are also found in other South East centres and in Edinburgh, Newcastle and Manchester. Argent Developments is building serviced apartments as part of the final phase of Brindleyplace in Birmingham, and hopes to create similar facilities at its office schemes in Manchester and Reading. Chief executive Roger Madelin says serviced flats offer landlords a valuable source of income as well as improving a scheme’s appeal to tenants.
In regional cities, operators are free of one London-specific problem. The 1973 Greater London Act discourages London boroughs from granting planning consent for short-let accommodation. The so-called 90-day rule is enforced most strictly in Westminster, Kensington and Chelsea and Camden – where most providers want to be. Applicants must fight for an exceptional permission, apply for a hotel licence or flout the law.
Interest group London First is keen to see a change in the law. “It’s important for London as a world city. Inward investors should be able to stay for a few months,” says executive director Judith Solomon. The organisation is about to survey London companies and inward investors on the scale of demand for short-stay accommodation, and plans to take its findings to the city’s new mayor.
New providers arriving
But despite planning difficulties, London is likely to see new providers and growth by existing ones. Later this year, the Whitbread-owned Marriott chain will bring sister firm Marriott International’s serviced-apartment concept to London. When the brewer quits its headquarters in Chiswell Street, SE1, it plans to convert the building into 135 studio, one- and two-bedroom apartments.
A prime opportunity for expansionist operators is offered by Forte’s sale of its serviced apartment block at the Grosvenor House Hotel on Park Lane for £80m.
BridgeStreet reports that its stock of London properties is set to continue the current pattern of 10% growth each month. Meanwhile, Oakwood is concentrating on expanding into the IT belt of Bracknell, Reading, Windsor and the M4 corridor, and hopes to develop a portfolio of 500 homes and apartments by the end of this year.
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Flats for executives US operators storm UK In London, there is the long-established stock, mainly in converted townhouses operated as a “cottage industry”. Top-end operators, such as Cheval, specialise in five-star Mayfair apartments. New branded operators include: Oakwood Corporate Housing: Based in Los Angeles, the company manages 20,000 apartments and homes in the US, and also operates in London and the Far East. Targeting the four-star corporate sector, in a joint venture with Regalian, Oakwood has taken on five-year master leases on 99 properties in the latter’s residential portfolio. Oakwood is eyeing Newcastle, Leeds and Birmingham. BridgeStreet Accommodations: The Ohio-based firm owns or manages property in the US, Canada, Europe and the Far East. In 1998, it had a turnover of $96.4m. It is the only major player with national coverage, managing properties for investors in London, Newcastle and Edinburgh. Bridge Street will buy, lease or manage properties, or act as agent for providers such as Cheval, or Galliard’s White House apartments. Crown Dilmun: The firm has bought properties in Glasgow and Manchester, but does not expect to open serviced apartments there until the end of the year. It prefers to purchase, redevelop and run them under its operating name, Central Apartments. Citadines: Paris-based Citadines, now incorporating former rival Orion, is owned by a US investment bank. It runs 49 “aparthotels” in France, Barcelona, Brussels and London, and had a turnover of £70m in 1999. The company has plans for Birmingham, Manchester, Edinburgh and Glasgow. |
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London is the focus but operators are taking the concept to other major business centres |
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Operator Apartments/houses in various locations Room rate |
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Bridge Street (non-agency only) |
London, 363; South East, 160; Manchester, 65; Newcastle, 73; Edinburgh, 25 |
From £500/week |
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Central Apartments/ Crown |
London, approx. 3,008: Clerkenwell, Kensington, Dilmun Bayswater, Notting Hill |
From £135/night |
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Cheval |
Knightsbridge, Kensington |
From £1,050/week |
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Citadines |
London, approx. 5,008: Barbican, Holborn, South Kensington, Westminster |
From £93/night |
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Oakwood |
London:Westminster, Docklands, SW7, SW1, NW9 |
From £130/night |
