Investment consultancy Thirlmere Deacon says serviced apartments, typically for visitors, can provide an attractive option for investors right now.
Thirlmere Deacon director Stuart Williams says: “The serviced apartment sector has grown considerably over recent years and has been outpacing hotel room investment. According to a report by Savills, serviced accommodation has fared better than hotels throughout the pandemic in terms of occupancy levels.”
He continues: “The term ‘serviced accommodation’ covers fully furnished self-contained property, which is available to let for both short and long term and might provide services similar to those offered by hotels, such as regular cleaning and access to the building’s facilities if there are any such as the swimming pool, gym or spa.
“While the Covid-19 crisis has adversely impacted the wider hotel industry, serviced apartments have displayed a relative degree of resilience. Serviced apartments have on the whole, been successful at capturing a greater degree of short-term leisure demand over recent years, its core guest segment continues to be corporates on longer length stays. It has been these longer length guests that provides the sector with higher average occupancy levels, something that has been witnessed on the entry to and during lockdown.”
The company says London serviced apartment occupancy stood at 61.8 per cent for Q1 2020, down 21.5 per cent on the same period in 2019 as Covid-19 started to take hold in March 2020. Hotels reported a larger decline of 23.0 per cent over the same period with average occupancy at 59.4 per cent, according to Savills.
Whilst serviced apartments were not entirely immune to the demand drop caused by Covid-19 the sector is set to recover the quickest and is predicted to see a 41 per cent rise in serviced apartment revenue per available room over the course of the year.
The fact that serviced apartments can also ensure greater social distancing, helped largely by its self-catering facilities, reduced social spaces as well as minimal contact with staff, has also meant that more properties have been able to remain open for their longer staying guests during lockdown and continue to appeal as guests remain vigilant. Additionally, the typically lower operating costs, coupled with longer average length of stay, continues to support profitability of serviced apartments during this period compared to full-service hotels.
Williams says investors should be careful not to confuse ‘Serviced accommodation’ with ‘short term lets’; when letting a property as serviced accommodation the arrangement is more akin to that of a hotel.
“Property investment comes in many shapes as sizes, investors are often focused on the property and capital growth and follow the tide when it comes to how the property is let. As a property strategy, serviced accommodation has the ability to earn a far higher rental income than properties that are let on a longer basis. If the accommodation is in a prime location the risk of void periods will be mitigated” concludes Williams.
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