When will it end? That’s the question some are asking about the global boom in serviced apartments, but the sector’s steep growth trajectory shows no sign of slowing with development pipelines in key markets such as Europe expanding, invigorated by the arrival of new brands and concepts.

Key players believe there is still tremendous opportunity for the sector, which has evolved dramatically over the past 20 years. There’s been an influx of new, smart money driving development, while the rise of Airbnb has highlighted the advantages of staying in an apartment rather than a hotel.

“The industry is buoyant and we are seeing increased demand from our existing apartment clients such as Punt Hill and are very excited to be working with The Ascott Ltd, which is aiming to have 160,000 units under management by 2023,” says RMS Cloud founder Peter Buttigieg.

Global Overview

There are now more than one million serviced apartment units around the world - a landmark reached during 2017, according to the 7th edition of the Global Serviced Industry Report.

But there’s room for plenty more.

“Despite the worldwide growth there are still shortages in many popular destinations. The unanswered question is how far we have yet to travel before a balanced level of supply and demand is achieved?” says Charles McCrow, CEO of The Apartment Service, which publishes the report.

The United States, where the concept of serviced apartments originated during the 1970s remains the dominant market with an estimated 55% share of the global letting pool, but Europe and Asia are the fastest-growing markets. 

Europe Booms

Europe is particularly buoyant. Industry analyst HVS says the European serviced apartment pipeline “has boomed” and is at record levels. HVS says 18,000 units are planned, 38% of which are scheduled to open next year (2020).

“It is safe to say that investors and developers see true potential in the sector,” observes HVS analyst Magali Castells. “Brands are looking into consolidating their presence in markets where they are already present, as well as expanding into new locations. 

“The focus is not only on Western Europe; interest is starting to be shown in Central and Eastern Europe, in countries such as Austria and Poland, where further potential can be found.”

ME Too

The Middle East apartment market is also expanding, fuelled by petrodollars, airline capacity increases, sustained inbound tourism growth averaging 3.6% over the past three years and upcoming major events such as the World Expo in Dubai next year and the 2022 FIFA World Cup in Qatar. 

Osman Nasir, Director of Sales and Marketing at Nuran Marina Serviced Residences in Dubai, says quality apartments always do well and are very popular with the Gulf family market, who much prefer them to hotels for cost, privacy and convenience reasons.

Corporate business remains robust, he says, although increased supply means occupancy rates have softened marginally.

Australia Steady 

In Australia, the serviced apartment sector has been growing revenue much quicker than hotels and resorts over the past five years. 

Research from IBISWorld research estimates average annual revenue growth for serviced apartments of 5.9% since 2014, compared with 3.4% for hotels and resorts.

It says that revenue growth in both segments has slowed over the past couple of years due to a proliferation of new properties, especially in the major CBD markets of Sydney and Melbourne.

Shaizeen Contractor, Chief Revenue Officer at TFE Hotels, which operates 36 Adina Apartment Hotels, notes that apartments “are a very versatile product, suitable for multiple market segments (and) can be more resilient to market ups and downs.”

Suburban Opportunity

Paul Constantinou, founder of Quest Apartment Hotels (176 properties in Australia), says that while CBD markets are under pressure, there are still big opportunities in outer urban and major regional centers simply because there isn’t the same level of competition.

“We measure where corporate activity is heading, and it’s no longer the city centre. Cities will house maybe the bankers, the insurance companies and the capital markets but the true corporate markets have gone out there into the suburban industrial parks.”

Constantinou says western Sydney still has enormous potential due to a high level of commercial development in areas such as Penrith, Blacktown and Sydney Olympic Park. “The same thing is happening in every capital city. So that’s where the opportunity lies.” 

He says Quest has also done well in key regional centres. “We actually find our regional properties outperform even some of the city centre properties in terms of rates because of the lack of supply.”

Design/Product Trends

The two biggest industry trends are intertwined. That is the rapid emergence of Co-Living brands such as lyf, UKO, We Live and the increase in the size and scope of public spaces among serviced apartments more generally.

It could be argued this has been inspired by the hype in the sector around Co-Living (an extension of the co-working space concept), which offer single rooms with bathrooms targetting millennials looking for short-term accommodation on flexible terms. 

Lyf, for example, describes its product as home for “a global community of thought leaders; a gathering of the best people and ideas shaping our generation. Treat yourself to a wide array of social spaces, each designed to allow you to live, work and play with like-minded individuals.”

Cool branding, public areas and guest interaction are key sales features of Co-Living brands. 

The Circle

Millennials are also front of mind for Adagio Aparthotels, a joint venture between Accor and Pierre & Vacances, which has introduced a new public area concept called ‘The Circle’.

The Circle encourages shared guest experiences and is currently being rolled out across the Adagio network of more than 100 properties in Europe.

Revamped common areas include a shared, fully-equipped kitchen to prepare meals that “that they will then have the freedom to share with other guests”, an informal reception, revamped commons areas with pianos, board games and table football.

There are also co-working spaces and a “Library of objects” where guests can borrow items such as plants, books, chairs and even trinkets to decorate and personalise their apartment.

Home away from home – everything old is new again.

The Future

Expect to see the continued growth of serviced apartments, especially in markets where they presently have a limited presence. 

Major hotel brands will increasingly invest in the space, joining the likes of Marriott, IHG and Hilton, while the product boundaries will continually be stretched as developers attempt to maximise profits while appealing to younger travellers looking for something different.