Aparthotel operator Native and mixed-use developer First Base have formed a partnership to build up to £400m of serviced apartments in the UK.
The joint venture will identify and secure sites for aparthotels – serviced apartment buildings with hotel-style booking systems – or mixed-use developments.
It will first focus on London, Oxford, Cambridge, Bristol and Edinburgh. Other target cities include Brighton, Reading, Manchester, York and Dublin.
The partnership aims to commit £200m in 2018 and a further £200m in 2019, with plans to develop the platform to sell as it matures. The total £400m target investment comprises equity and debt.
First Base, led by Elliot Lipton, specialises in major urban renewal. It will oversee design, planning and construction.
Archie Hunter, development director at Native, said: “This partnership demonstrates our commitment to standout aparthotel developments across the UK, at a time when the sector is set for expansion.
“Our expansion will enable us to take our unique proposition to a greater range of key UK cities, addressing a gap in the market.”
Rejuvenating town centres
Barry Jessup, director at First Base, added: “Demand far outstrips supply for aparthotels in these locations, and we see homestay living playing an important role in the revitalisation of town centres.
“We will begin work on these developments as soon as we have secured the sites and planning consent, such is the demand.”
Native, which has a £1.7bn portfolio of assets under management, is 70% owned by Ares Management.
Its clients include CBRE Global Investors, Dorrington, Grosvenor, Standard Aberdeen, Aviva and LaSalle Investment Management. The business has estimated that it will operate more than 2,500 units by the end of 2019.
First Base, which is privately owned, recently secured consent for a £120m mixed-use development in Brighton, and is working with the London Borough of Havering on a 1m sq ft redevelopment in Romford’s town centre.
The partnership is one of a number of entities that are expanding into the rapidly growing aparthotels market.
And serviced apartment company SACO, recently acquired by affiliates of Brookfield Asset Management, completed a series of new acquisitions in March that added nearly 1,000 new units to its Locke lifestyle aparthotel concept.
A promising sector
The partnership points to findings by market research firm STR Global revealing that the average daily rate in the aparthotel sector rose by 5.4% during 2017, leading to a 5.7% increase in revenue per room.
Research by JLL estimates that around 13,000 serviced apartments will enter the UK and Irish market by 2021.
According to STR, the UK and Ireland now provides more than 22,000 serviced apartments, up by 13% on two years ago.
London is forecast to account most of the UK’s pipeline. Dublin, which is expected to benefit from Brexit, is in second place, while other cities predicted to perform strongly include Manchester, Liverpool, Glasgow and Edinburgh.
JLL also outlined expectations that serviced apartments will grow at a quicker pace than hotels over the next few years. It notes: “The sector is set to expand to the rest of Europe, as more travellers desire a flexible, home-style travel accommodation.
“Hotel operators and investors are capitalising on this demand, which drives a much higher margin than traditional hotels. With more quality supply coming to the market from established players, demand for this product will continue to increase.”
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