Nov

Serviced apartments – the new opportunity in US property investment

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There are 826,759 serviced apartments around the world (GSAIR), and 61% of them are in the USA (Knight Frank). Over there, they’re often known as ‘extended stay apartments’ and were originally conceived with the business traveller in mind.

The concept of a serviced apartment works in favour of guest and hotelier alike. Consisting of at least one bedroom (often two or three), a bathroom, a living area and a fully-equipped kitchen, guests have a generous space to spread out in and call their own. Hotel owners are able to cut down on overheads and do away with large area, low margin facilities like public lounges, restaurants, kitchens and full-service lobbies.

The resulting cost savings and lower than hotel rates meant the idea took off quickly and the appreciation of a ‘home-from-home’ accommodation option gained momentum, particularly with families and groups.

It also extended the appeal of serviced apartments beyond business travel to the leisure and vacation market. City centres are no longer the sole focus of the serviced apartment sector; families want to go on vacation together to popular destinations, meaning that serviced apartments represent some of the best investment properties in Florida, for example.

The Airbnb phenomenon has transformed travellers’ expectations, and traditional hotel accommodation is less appealing to millennials. Serviced apartments, on the other hand, are finding huge favour; average occupancy has been higher than 74% since 2010, and higher than 75% since 2013.

Even allowing for the fact that supply has increased by 23% since 2013, occupancy rates in the USA have maintained their level at around a healthy 76%. In fact, according to sector analysts The Highland Group, demand has been up by between 5% and 7% per quarter for the last two years.

As a consequence, US serviced apartments have been able to raise their rates faster than hotels; revenue per room has increased for serviced apartments in 2017 but has dropped slightly in hotels.

Nor does the popularity of serviced apartments show any sign of abating; over 27,400 are scheduled to open in America by the end of 2017, and a further 35,000 during 2018 (Lodging Econometrics).

What’s also interesting is that serviced apartments are no longer the exclusive preserve of the big hotel chains like Hilton and Marriott. James Harrington, Business Development Manager at sector specialists Emerging Property explains “Many private investors are unaware that they can actually own an individual serviced apartment in the USA, but in fact they can. What’s vital, though, is to be completely satisfied that the developer has a really good track record in the sector, and that the property will be professionally managed 24/7 by a company with a solid background in resort hospitality. And because overseas property investment can be quite different from here in the UK, it’s important to get expert advice before committing to anything.”

Overseas investors accounted for $153 billion of residential property sales in the USA in the year to March 2017, attracted by the country’s economic opportunities, economic security and political stability. It’s also a great place to visit and stay in your own property.

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