S E R V I C E D A PA R T M E N T S

Checking in for the long term

J U LY 2 0 1 5

I N PA RT N E R S H I P W I T H

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Recent years have seen the

serviced apartment model
blossom into a dynamic,
efficient and fun alternative
to other forms of lodging

Regent Residences, Porto Montenegro

INTRODUCTION

o longer the unglamorous hospitality sub-sector, recent years have seen the serviced apartment model blossom into a dynamic, efficient
and fun alternative to other forms of lodging that responds to a number of emerging travel trends. Whats more, the economics are highly
appealing too.
As the sector evolves, there is a need for greater intelligence and understanding of the nuances of this real estate asset class. WATG has interviewed
a cross-section of experts in the serviced apartment sector on the appeal from the perspective of the developer, investor, operator and end-user. This
feedback is shared over the following pages, along with a commentary on the role of design, with insight from Wimberley Interiors.

St Marys Residences, Kuala Lumpur, Malaysia

OVERVIEW OF THE SERVICED

A PA R T M E N T L A N D S C A P E

he serviced apartment model is currently one of the most

exciting real estate asset classes. Interest in the sector is
growing, and the amount of new product coming online is gathering
pace. The arrival of several innovative operators, as well as continued
growth of the industrys more established names, has given a new
impetus to the sector.

Room service? Send up a larger room. (Groucho Marx)

So what are serviced apartments and how do they differ from hotels?
In their simplest form, serviced apartments provide an alternative
form of lodging for those away from home for an extended period
of time. Serviced apartments provide a home-like environment, with
units typically some 15 to 30 percent larger than a standard hotel
room.

So who lives in a place like this?

The fundamentals of the serviced apartment concept are driven by
the needs and preferences of corporate travellers (average 70 percent
of guests across sample of leading operators). This includes those
on short-medium term assignments, as well as those relocating on
a more permanent basis requiring interim accommodation whilst
searching for a traditional residential dwelling. These clients form a
solid base of unit occupancy, upon which higher yielding short-stay
travellers are layered.

The rise of the bleisure traveller has had particular resonance for the
serviced apartment sector. Those looking to combine the functionality
required for a business trip with an opportunity to have fun and
engage with the local community in leisure time, have a growing
platform of serviced apartments to choose from. Smart brands are
those that can design products and services for our blurred lifestyles
(The Apartment Service).
Operators insist that the role of pure leisure travellers should not be
underestimated. Serviced apartments provide a spacious environment
for couples and families, and these guests tend to fill units at
weekends when short-stay corporate demand dips. Indeed, Guus
Bakker of Frasers reports that the market mix is reversed in certain
properties in London and Paris, with more leisure than corporate
business. This has implications on the product and service provided.
George Sell (Serviced Apartment News) notes that serviced
apartments offer leisure travellers excellent value, providing a
comfortable base from which to explore an area without having to
pay for F&B, leisure and meeting facilities that they will not use. As
the sector becomes better known and consumer awareness levels
improve, I predict a surge in leisure use for serviced apartments in city
centre locations.

Diversification of the sector

grow through site acquisition/development while other operators are

limited to lease deals and management agreements.

In recent years the hospitality sector has seen a plethora of inventive

hotel concepts across the urban landscape. The rise of lifestyle
hotels responding to emerging travel trends is exemplified by an
ever-growing roll call of brands. Further, hotels at the affordable end
of the spectrum have also been getting creative, with the growing
presence of select-service lifestyle hotels such as CitizenM and Yotel
combining fun, eclectic design with greater price accessibility.

Seeking finance: Historically, a lack of awareness of the asset class has

been cited as a major barrier to attracting investment. When talking
to the banks, the first question asked is whether you are residential or
commercial, says Max Thorne (Beyonder by SACO ApartHotel). Even
those at differing ends of the same sector will provide an alternative
response to this, and this confusion can deter lenders.

However, we have observed much less innovation in the international

serviced apartment sector to date. Market positioning tends to be
clustered around the mid-market, with few operators offering a truly
upscale product. Opportunities clearly exist for further fragmentation
within the sector. By year-end, 2015 will have witnessed the entry
of luxury boutique hotel chain Firmdale to the apartment sector, as
well as exciting new concepts from Urban Villa, Beyonder by SACO
ApartHotel and Zoku. Design boundaries are clearly beginning to be
pushed, creating a real buzz in the market.

There is a general lack of market transparency in terms of

benchmarking of operational data and transactions, and this has
subdued activity from some major hospitality investment funds
such as Host Hotels & Resorts and GIC Real Estate. However, as
understanding of the nuances of the sector become clearer, and
empirical evidence more comprehensive, such players are likely to
take note of this emerging asset class, as illustrated by Starwood
Capitals recent foray with the acquisition of a major share of the
Think Apartment portfolio, now operated by Go Native.

THE BIG ISSUES

Communicating the message: Encompassing both aparthotels and
corporate housing, the serviced apartment sector has experienced
serious identity issues over the years. Indeed, many commentators
suggest that this ambiguity has been a major barrier to the sectors
growth. However, 2014 saw the delivery of an industry charter,
devised by Serviced Apartment News and HVS, to which many
big industry players have signed up including Adagio, The Ascott
Group, Frasers Hospitality, SACO, Go Native and Staybridge Suites.
This is a notable step towards communicating a consistent message
to the masses. But what are the other major challenges facing the
sector? We held discussions with a number of leading investors and
operators to find out.
Finding stock: The Apartment Service reports that supply in Europe
increased by some 24 percent since 2013. While this growth is
undoubtedly impressive, many developers in prime urban locations
still tend to focus on traditional residential and hotel opportunities.
Opportunities for operators to grow their portfolio are constrained,
to some degree, by the ability to identify new stock. Adam Lowenthal
(Domus Nova Investments Ltd/Stay AKA) suggests that finding the
developer who is willing to build serviced apartments rather than
hotels or residential is tough! Many developers focus efforts on the
residential sector, and this trend has been reinforced by public sector
ambition to address housing supply/demand issues, particularly in
London. Are the serviced apartment operators able to offer the
developer a better deal than a residential scheme would? That is the
challenge.
Not all serviced apartment operators have the equity partners behind
them to own, build and operate their own properties. Those that
do have such backing (e.g. Stay AKA - Blackrock, California Pension
Fund, etc, and Beyonder by SACO ApartHotel - Oaktree) are able to

The confidence generated by strong brands also plays a key role

in attracting investment into the sector, something that has been
lacking to date. Indeed, it is reported that increased brand awareness,
and the subsequent perception of covenant strength, would add
significant appeal to investment funds.
Branding: As a relatively embryonic sector there is a notable lack of
brand clarity in the market. While impressive operating performance
suggests that this does not dampen consumer demand, experts
suggest that a lack of awareness acts as something of a deterrent for
investors, developers and lenders. In contrast, these parties have a
clear understanding of requirements and metrics of the hotel brands.
There is widespread agreement that brand recognition and familiarity
with the concept is something that will occur naturally over time. As
brands proliferate the market, the sector will become better defined.
Indeed, those owned by major hotel groups, such as Marriotts
Executive Apartments and Residence Inn, IHGs Staybridge Suites,
Starwoods Elements and Accors Adagio, have the advantage of
flying under the banner of their well-established parent company.
Whilst aparthotel operators are increasingly seeping into public
consciousness, the Private Rental Sector remains a largely brand free
zone. Essential Living is looking to capitalise on this perceived market
opportunity, with a mission to establish Essential Living as the preeminent trusted brand for tenants and communities.
Where are the hot markets?: Any city with a large transient
population, both corporate and leisure in nature, represents a strong
opportunity for serviced apartments. That is the view of Andrew
Hunter of Adina, currently operating around 30 aparthotels in
Australia, seven in Europe plus four under construction, and plans to
enter the UK market shortly.

So, in the UK for example, is it all about London? Absolutely

not was the response from all operators. Around the UK serviced
apartments have been introduced with great success, and there are
strong indicators of further success in key locations. Scottish cities
were top of many operators wish list, particularly Edinburgh which
has seen a number of new openings in recent times.
Numerous commentators have the Middle East, Africa, India and
China on their hit list, although barriers to entry are often high.
Adagio, BridgeStreet and Marriott all reference huge potential in
certain African countries offering a stable business environment,
rapidly growing demand, a large expat workforce and limited supply.
Such markets include primary cities in Nigeria, Ghana, South Africa
and Kenya, for example.
The magic formula: As with hotels, location is key. However, in the
case of serviced apartments this may not mean ocean frontage or
adjacency to famous landmarks. A perfect piece of land is close to
class A office space where the major corporations in town reside
(Jack DeBoer, WaterWalk). It also needs a liveability factor because
since people are staying up to 12 months, they need restaurants and
retail nearby.

instances, proximity to commuter links is considered essential. This is

demosnstrated by IHGs launching of Staybridge Suites in Londons
Stratford and Vauxhall.
The efficiencies of dual-branding: Adagio, Staybridge Suites and
Marriott Executive Apartments are all operated under the umbrella of
their parent hotel groups, Accor, IHG and Marriott respectively. Each
sees the virtue in combining serviced apartments with a hotel in a
given scheme, thus maximising the value of the development.
Such operations are highly efficient, with a shared core, back-ofhouse, laundry, security, for example. In such instances, operating
costs are typically allocated to the hotels P&L, with the serviced
apartment operating revenues being almost all-profit. It is
acknowledged that there is a degree of demand cannibalisation
between the operations, but operators suggest that the opportunity
to expose short-stay guests to the extended-stay product can garner
positive results in the long term.

With a scarcity of development opportunities in prime business

districts, it may be necessary to consider secondary locations. In such

St Marys Residences, Kuala Lumpur, Malaysia

St Regis Hotel & Residences, Singapore

HOW DO THE ECONOMICS

S TA C K U P ?
Aparthotels vs. Hotels An Indicative Appraisal

s it time to take note of the ever-burgeoning serviced apartment

sector? Industry commentators unanimously tell us YES, but
why should investors, developers and operators strive to understand
this niche sector when the traditional hotel model has worked so
well for so long? There are numerous reasons, and this paper now
assesses the financial equation.
We present below an appraisal of the business case for a serviced
apartment development, set against that of a four-star hotel
operation in a given location - Central London. We have modelled a
product towards the aparthotel end of the spectrum. Assumptions
are based on WATGs experience, and in conjunction with SACO.

We also draw on insight provided by numerous operators including

Adagio, Frasers, Marriott, BridgeStreet, Adina, Stay AKA and Go
Native.
In an urban context, prospects for serviced apartment development
typically include residential, hotel and office conversions, as well as
new build. For this exercise we have assumed an office conversion,
with a Gross Internal Area of 8,500 sqm.

Site Location

CENTRAL LONDON (I.E. LIVERPOOL STREET)

Gross Floor Area

8,500 SQM
FOUR-STAR
APARTHOTEL

FOUR-STAR
BUSINESS HOTEL

Net Area Per Key

Net Area Per Key

34 SQM

26 SQM

Gross Area Per Key

Gross Area Per Key

51 SQM

53 SQM

No. of Keys

No. of Keys

167

160

Guest rooms
Part of the confusion surrounding the serviced apartment sector stems
from the distinctly differing offers, from fragmented collections of
individual units, to aparthotel buildings typically of 60 units upwards.
Operators report a desire for a minimum of 60 apartment units in a
given project. Max Thorne (Beyonder/SACO) considers a need for 100
units to make a building work comfortably. This scale of inventory
allows for fixed costs to be dispersed sufficiently, and is modest enough
to ensure that occupancy and rates are not compromised. If a market
is strong enough, a building of up to 200 apartments would be
fantastic.
Most aparthotels include a mix of studio and one-bedroom apartments,
with a small number of two-bedroom units. For the purposes of the
appraisal we have assumed the following mix of apartment types, with
an average unit size of 34 sqm.
APARTMENT MIX & SIZES
Mix

No.

SQM

Area

Studio

35%

59

28

1,650

One-Bed

60%

100

36

3,600

Two-Bed

5%

50

400

100%

167

34

5,700

Public Facilities
Many serviced apartment operators consider their business model to be
purely a rooms factory, with public facilities simply detracting from the
maximum number of keys that can be configured within the building.
Indeed, for a typical hotel operation, the rooms division achieves
significantly enhanced profit margins than other departments such as
F&B and spa/fitness. On this basis, and the fact that exceptional public
areas tend to have only a modest uplift on occupancy and rates, such
areas should be kept to a minimum rather than cutting into rentable
area. In certain instances, it may be possible to utilise basement space
to cater to facilities such as fitness and meetings facilities.
However, several emerging industry players see amenities and facilities
as playing a significant role in the operation, not just as departmental
revenue generators, but also boosting rates. Furthermore, it is proposed
that should a guest form social connections with other
residents, they are more likely to extend their tenancy. Therefore,
communal gathering points, such as a lounge or bar, encourage guests
to forge such relationships. Essential Living extols the virtue of such
space, in some instances by elevating its location to a higher value
upper floor rather than ground level. The resultant effect is longer stays,
and thus fewer void periods and higher occupancy rates.
The food and beverage offer in aparthotels is generally fairly modest.
Many operators provide a welcome hamper of basic provisions, and
subsequently offer a grocery shopping service. Breakfast service
typically comprises a coffee machine, and perhaps grab-and-go style
continental option. Should there be a perceived market for a more
substantial facility, most operators have a preference for outsourcing
ground floor space to a third party coffee shop operator. Indeed, Guy

Nixon (Go Native) suggests in most instances, a city location will mean
you have a plethora of cafes, restaurants and bars within a ten minute
walk. Why waste valuable space by providing this in-house?.
For those in residence for an extended period, the notion of dining at
an in-house restaurant can become somewhat tiresome. Guests prefer
to be self-sufficient and explore a range of external dining options.
Throughout the sector, we observe a major trend towards engagement
with the local area. The much discussed sharing economy has brought
us not only Airbnb, but also platforms for foodies to connect with
local dinner parties through websites such as EatWithALocal and
Cookening. Although an extreme example of the quest for authenticity,
this is emblematic of a general movement towards guests embracing
the experiential side of travel.
Developers and operators must consider the end user when refining
their product. The modern (and future) business traveller is very
different from those of the previous 20 years. Generation Y are by
nature hard to please. Pre-stay they expect a simple booking process
via mobile applications; during their stay they require complete
connectivity, efficient but innovative design styles and a localised
experience; and, post-stay there is an opportunity for operators to stay
connected to guests through social media channels, though to date this
demographic has demonstrated lower levels of brand fidelity.

Area Programme
We present below typical area programmes for both operations, based
on WATGs experience and feedback from hotel and serviced apartment
operators. The efficiency of the aparthotel model is significant, with
reduced public areas and back-of-house. As such, nearly 70 percent
of the total Gross Internal Area is lettable space. We have allowed for
a grab-and-go facility in a social lounge of some 100 sqm, as well as
a modest fitness facility of 75 sqm. The proposed programme for the
hotel operation includes a more generous lobby area, an all-day-dining
restaurant, meeting facilities and a fitness room, totalling a combined
1,400 sqm.
AREA PROGRAMME COMPARISON
FOUR-STAR
APARTHOTEL

FOUR-STAR
BUSINESS HOTEL

Area Per
Key (SQM)

Total SQM

Area Per
Key (SQM)

Total SQM

Guest
Rooms

34

5,700

26

4,200

Public
Areas

500

1,400

Corridors

12

2,000

10

1,600

Back-ofHouse

330

1,300

GIA

51

8,500

53

8,500

Capital Cost Comparison

Cost consultants Implementar are strategic advisors specialising in
the global hospitality sector. Implementars experience of serviced
apartment and hotel development projects reveals that the construction
costs for each model differ only marginally.
Cost estimates provided for this paper show that on a per sqm basis,
the amount of capital required for an aparthotel building is some
five percent below that of a business hotel of equal positioning. Cost
savings stemming from a reduced back-of-house (especially kitchen)
are notable, and more modest public areas also deliver efficiencies.
However, it should be noted that each unit requires its own kitchenette,
thus increasing FF&E / OE costs per key.
COST ESTIMATE COMPARISON
FOUR-STAR
APARTHOTEL

FOUR-STAR
BUSINESS HOTEL

/SQM

/SQM

Building

21.9m

2,600

22.4m

2,650

FF&E / OE

1.7m

200

2.1m

250

External
Works

0.7m

80

0.7m

80

Professional
Fees (12%)

2.9m

340

3.0m

350

Cost Per Key 163,000

3,200

180,000

3,330

Total

27.2m

Basis & Assumptions

- Central London location
- Upmarket quality
- Cost effective design & construction
- Current year values

STR Global data suggest average occupancy levels of 83 percent in

Londons serviced apartment market (Jan to Aug 2014). WATG research
with local operators indicates that occupancy of 88 to 92 percent are
common amongst leading operators in prime locations.
We have applied an annual occupancy rate of 88 percent for
the aparthotel and 80 percent for the hotel operation.
Average Daily Rates (ADRs)
According to data published by The Apartment Service (provided by STR
Global), the London serviced apartment market achieves the highest
rates globally, at 167 per night in 2014.
Across the market, ADRs of serviced apartment operations tend to be
in line with business hotels of a similar positioning. While the hotel will
have a more substantial amenity offer (notably F&B outlets) and higher
levels of service, apartment units tend to be more generously sized.
Among our sampled operators, it is suggested that serviced apartment
ADRs are plus/minus five percent against those of a corporate hotel of
a similar quality and market positioning. Certain operators offer more
generously sized units and hotel-like service and amenities. As such,
rates at some aparthotels are able to exceed those of comparable
hotels.
For this exercise we have applied an ADR of 135 for the
aparthotel and 145 for the hotel operation.

28.2m
Exclusions
- Demolition & enabling works
- Planning related charges
- Finance & insurance costs
- Legal acquisition costs
- Contingencies
- VAT

Aparthotel

In terms of site acquisition costs, the sharp rise in real estate values in
London has made viable development opportunities a rare find. This has
proved a major challenge for all interview respondents in recent times.
For this financial modelling exercise we have assumed a site aquisition
cost of 17.5 million.

Occupancy Rates
The basic premise of the aparthotel product is that with a lengthy
average stay, the impact of room vacancies is reduced and enhanced
annualised occupancy rates are possible. Serviced apartment operators
constantly report that annualised occupancy sits eight to ten
percentage points above comparable hotels.

Business Hotel

Revenue per Available Room (RevPAR)

Driven by strong occupancy, and solid room rates, serviced apartment
operations are generally able to achieve RevPAR levels in excess of a
comparable hotel operation. Our hypothetical aparthotel and business
hotel show respective RevPARs of 119 and 116.

Revenue Mix

Operating Costs

With a few exceptions, the aparthotel model is about conserving

back-of-house and public space in order to maximise the number of
apartments in a given building. This rentable space typically generates
between 85 and 98 percent of a buildings total revenues. We have
allowed for a food & beverage contribution generated by a modest
grab-and-go outlet in the lobby, as well as other minor spend on
items such as telecommunications, laundry, etc. We forecast that
the rooms division accounts for some 93 percent of aparthotel
revenues, and 72 percent of hotel revenues in this scenario. For the
hotel operation, the F&B department will generate in the order of 24
percent of total revenues, with significant breakfast uptake, as well as
moderate lunch, dinner and room service demand.

Business Hotel

LO N G E R
ALOS
CO M PA R A B L E
ADR
HIGHER
OCC
HIGHER
R E V PA R
LOWER
O P E R AT I O N A L
COSTS
HIGHER
GOP
MARGIN

Aparthotel

The operating efficiency of serviced apartments, in all forms, is

central to the success of the model. Leading operators report Gross
Operating Profit (GOP) margins ranging from 60 to 80 percent, with
aparthotel models generally towards the lower end of this range
(60 to 68 percent). This is some 10 to 20 percent above comparable
hotel operations (average 12.5 percent). Its all about creating better
operating models and higher returns on investment says SACOs
Stephen Hanton.
These efficiencies are made possible in several areas. Firstly, staffing
requirements for serviced apartments are much lower than hotels.
Christabelle Morgan-Desouches of Adagio reports that with the
outsourcing of housekeeping, it is possible to run a 120-key property
with just ten members of staff. You can grow your margins a great
deal if you are able to keep the number of full-time equivalents down
whilst maintaining service levels. Hanton suggests that a 150-unit
aparthotel would require around 30 staff, inclusive of housekeeping
(0.2 employees per key). This compares to an estimated team of 160
at an equivalent business hotel (1.0 employees per key).

Its all about creating better

operating models and higher
returns on investment
(Stephen Hanton, SACO)
WATGs indicative profit and loss appraisals show GOP margins of
63 percent and 49 percent for the respective aparthotel and hotel
operations.

Regent Residences, Porto Montenegro

O P E R AT I N G P E R F O R M A N C E
Below we summarise the projected key performance indicators for the discussed aparthotel and business hotel in the stabilised year of operation
(2015 values).
Londons market fundamentals are robust, with strong occupancy performance and modest new supply driving rates. The aparthotel product is
one of the most profitable to operate throughout the hospitality sector with margins far in excess of traditional hotels.
When all is said and done, what matters most is the profitability you are able to achieve out of each and every sqm of your building. WATGs
analysis reveals that an aparthotel operation is able to drive higher levels of profit per sqm than an equivalent hotel operation (488 and 442 per
sqm respectively). This difference may seem somewhat marginal, but over the entirety of the premisis, the impact is quite significant.

FOUR-STAR APARTHOTEL

F O U R - S TA R H OT E L

88%
OCCUPANCY

80%
OCCUPANCY

135

ADR

145

119

RevPAR

116

93%

72%

ROOMSREVENUE

7.8
MILLION
63%/53%MARGIN
4.9/4.2MILLION
PERSQM-488
PER SQFT - 45

ROOMSREVENUE

Total Revenues of

GOP
&
NOI

PROFITABILITY

9.5
MILLION
49%/40%MARGIN
4.6/3.8MILLION
PER SQM - 442
PER SQFT - 41

RETURNS ON INVESTMENT
Full-service hotels often require more capital to build, are space hungry and are expensive to operate. Conversely, serviced apartments are
typically more cost efficient to build, less expensive to operate and, in some cases, achieve rates that are similar to comparable hotels.
Serviced apartments increasingly benefit from favourable sentiment with investors and developers. Recent acquisition activity illustrates their
growing standing among private-equity firms. It is our understanding that capitalisation rates for serviced apartments vary little from those of
hotels in London. For this exercise we have applied an exit yield of 5.0 percent for each scenario. With a higher bottom line, this results in a
enhanced exit value for the aparthotel, and coupled with a slightly lower capex requirement, produces strong returns. Should the aparthotel
command a slightly less favourable exit yield of 5.5 percent, the IRR would see a modest drop to 18.0 percent.
WATGs indicative appraisal of the two development scenarios presents a clear picture of the virtues of the serviced apartment model. However,
it is important to stress that development opportunities must be assessed on a market by market, and site by site basis. Local market dynamics of
supply and demand will always influence the optimum economic opportunity.

FOUR-STAR APARTHOTEL

17.5
MILLION

F O U R - S TA R H OT E L

SITEACQUISITION
COST

17.5
MILLION

27.2
MILLION

Total
Construction
Cost

28.2
MILLION

5.0%

EXIT
YIELD

5.0%

93.1
MILLION

TERMINAL
VALUE

82.3
MILLION

19.3%

IRR

@ 50/50
DEBTTO EQUITY

16.2%

18.7
MILLION

NPV

@ 10%

11.9
MILLION

1: 2.3

MONEYIN/OUT

1: 2.1

Design needs to be smart,

efficient and create a real
sense of place

Le Parc at Thamrin Nine, Indonesia

BRINGING DESIGN
TO THE FORE

ATG and Wimberley Interiors are the worlds leading

hospitality design firm. We understand the value of unique
and timeless design, be it through architecture, landscaping or
interior design. As the global hospitality marketplace evolves, and
travellers preferences shift, there is a need to not just be reactionary
but also to anticipate future trends and be visionary in our approach
to each project.
It can be argued that the serviced apartment sector has, for some
time, lagged behind the wider hotel sector in terms of innovative
design. The shifting dynamics of the modern travel market must be
reflected by a dynamic approach to new serviced apartment schemes.
We present below a summary of key trends that we think will shape
the sector in the coming years.
To standardise or to localise?: We earlier cited a lack of brand identity
within the sector as one barrier to growth. It could be argued that
the global standardisation of a particular operators brand identity can
foster a degree of familiarity in the consumer. However, recent years
have seen a major shift in the wider hospitality sector away from such
an approach, towards unique design styles and an emphasis on

localisation. This is exemplified by the rapid emergence of eclectic

lifestyle hotels, and the rise of innovative booking platforms such
as Airbnb. It is important for serviced apartment operators to find
the right balance, allowing for the brand to develop its own distinct
identity, whilst also providing the consumer with a unique residence
in keeping with the local environment. Urban Villa is a fine example
of this ethos and it will be interesting to observe the reaction of the
consumer moving forwards.
Blurring of business and leisure travel: Much serviced apartment
supply has been designed based on the needs of your average
business traveller. Yet, numerous operators report growing interest
from the leisure travel segment, and with an ever-increasing role
of online booking engines (OTAs) serviced apartments are likely to
become increasingly part of the hospitality mainstream.
As such, there may be a need to revisit the mix of apartment
types and sizes, as well as amenity and service provision. Indeed,
Adagio says that currently 10 to 15 percent of rooms should be
interconnecting to allow for larger multi-generational groups. We
suggest that the need for such flexibility is set to become even
greater.

Space efficient design: There are new prototypes in the sector that
reflect increased efficiencies of space. Over time the extended-stay
unit has decreased in size and we expect this to continue...within
reason.
The cost of land and real estate represents a major barrier to
development in many primary and secondary cities globally. It is not
possible to pass on these capital burdens to the consumer through
drastically inflated room rates. As such there is a need to meticulously
assess the opportunity to extract maximum possible returns from a
given project.
Several innovators in the industry have implemented space-saving
solutions ranging from fold-away beds, overhead storage and
slimming down the depth of furniture. The new concept from
Zoku demonstrates the potential to create a desirable work/live
space within a 25 sqm unit! A model apartment was tested on 200
consumers to ensure that such techniques did not compromise the
functionality and appeal of the product.

Design is a funny word.

Some people think
design means how it
looks. But of course,
if you dig deeper, its
really how it works.
(Steve Jobs)
Market positioning: Unlike the hotel sector, with its diverse offering
of typologies, the serviced apartment sector has traditionally been
dominated by mid-market corporate units. More recently, boundaries
have begun to be pushed by innovative concepts and those offering a

Urban Villa

more aspirational product. We suggest that there is scope for further

diversification in the sector, in terms of unit sizes, amenity offer,
design styles and price points. It will be important for each brand to
carve out its own niche, and ultimately the breadth of appeal of the
sector will extend across a wider audience.
Generation X, Y and Z: Where will technology take the sector
in the next ten years? Clearly, millennial travellers demonstrate a
greater need for in-room connectivity and access to multi-media
platforms whilst based away from home. Past this, Beyonder by
SACO ApartHotel will use energy monitoring technology to allow
consumers to regulate their own usage, with an ambition to deliver a
greener operation. Tablet controlled lighting, television / music and
heating also looks set to become the norm.
Generation Y dont want F&B in-house. This demographic shows a
greater proclivity to drink and dine in establishments outside of the
hotel environment. They search for closer connectivity with the urban
environment, and tend to reject the standardised offer found in most
business hotels. The majority of serviced apartment providers omit
this department altogether, with others providing a simple grab-andgo style option.
Nevertheless, the wave of millennial travellers has seen a rise in
demand for funky, social gathering points. Hans Meyer of Zoku
comments that a social structure is highly desired as global nomads
often feel disconnected. Zoku has decided to focus on connecting
their residents with each other and the city theyre staying in. Were
stretching the definition of a hotel into something new: a place
where people can share ideas, but also bread, cheese and wine...
Healthy travel: We observe an international movement towards
healthy travel. We have all felt the affects of too much time in
airplanes, stuffy hotel rooms, unhealthy eating / drinking patterns and
interrupted exercise routines, synonymous with business travel!
We hope to see leading operators taking note of trends observed
in the hotel sector, such as MGMs Stay Well rooms, IHGs Even
brand and Swissotels Vitality programmes. We expect to see more
personal trainers and nutrition experts, sleep therapy initiatives and
in-room wellness programmes.

Beyonder by SACO ApartHotel

Hospitality: Serviced apartments are in the business of hospitality. A

warm welcome, personal touch and on-call service are key elements
of generating positive customer satisfaction and must not be
forgotten.
Without focusing on the guest experience and really offering great
hospitality that exceeds a home from home experience, then our
businesses may not flourish. I would also even dare to suggest
that our industry may not continue to develop and take its rightful
position alongside the more traditional hospitality offering - hotels.
(Jo Redman, SACO).
Interior design trends: It is time to shake up the image of the sector.
Yes, serviced apartments must, above all, offer a comfortable and
functional residence. But as the sector continues to grow and evolve
we want to see the boundaries of interior design pushed.
As Rachel Johnson of Wimberley Interiors notes, more and more
travellers are opting for a serviced apartment over a hotel room
as they are seeking space, functionality and ultimately a sense of
freedom to make a coffee or even entertain. The design needs to be
smart, efficient and create a real sense of place.

The relationship between

great design, strong
operating performance,
and developer returns is
a clear one.

Brands are still finding their way, refining the essence of their product
from decor, fixtures, furnishing, equipment and service. We look
forward to assisting with this evolution and hope to see a wave of
dynamic brands in the marketplace in the coming years.

Zoku

With Thanks

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