The Apartment Hotel, sometimes referred to as a serviced apartment, is quickly becoming the fastest-growing sector in the hospitality industry. At Luxury Hotel Advisors, we think the reason is simple. While this asset class is oftentimes in a very similar price range to a hotel room, they almost always offer more space than a typical hotel rooms, or even an extended stay hotel room, and they come with flexibility.
Spotlight on This Sector
With local tourism and staycations becoming more popular the spotlight is on this sector and its top-class gyms, concierge services, fully equipped kitchens, washer/dryers, dishwashers and more. Apartment hotels also offer a terrific accommodation alternative for corporate travelers who require more flexible stays.
Even before Covid, the hotel industry had started to take a beating from Airbnb, VRBO hosts and other share platforms. During Covid these platforms have skyrocketed. Consumers are clearly looking for alternative accommodations which offer more home comforts as well as a more local experience when traveling for both business and vacation.
More Like Home
Apartment hotels offer a more personal feeling of homeyness than a hotel room. Given the average stay in these types of accommodations is over 20 days, many guests do indeed book for months at a time rather than days.
It is home for families who are on extended vacations, relocations, or other reasons as well as for corporate travelers who are looking for a better experience and a more cost-effective alternative than the traditional hotel room.
We See It Starting Now
We are seeing the development of many hotel projects that look and feel more like apartments which cater both to transient and longer stay guests. Companies like Sonder and AKA Hotels have carved out a niche which appeals to a wide range of consumers seeking a unique experience while avoiding some of the downsides of Airbnb and similar platforms. Of particular concern with Airbnb is the inconsistency of product, safety and privacy issues for properties using these platforms.
Hybrid apartment hotels have the look and feel of an apartment building with fully furnished studio, one and two-bedroom units with kitchens and in unit washer dryers. They also provide facilities such as pools, fitness centers, business center/workspaces and parking. What makes these properties unique it they also provide services more commonly found in hotels including housekeeping, concierge and on-site food and beverage. Bookings can range from one night to one year. While occupancy taxes may be charged in addition to daily rates (for stays up to 30 days), this is the same as for a typical hotel stay. Airbnb is also now facing this issue of transient occupancy tax in many of its locations.
From The Consumer
From a consumer perspective, many advantages of apartment hotels are apparent when compared to Airbnb and similar platforms. Hotel apartments provide for flexible pricing and stays that range from one day to one year. It provides a far more consistent product which appeals to a wide range of travelers including business and leisure trips. It provides hotel amenities and social spaces which are especially important to younger travelers. It overcomes many security and privacy concerns which are becoming a significant issue in some individual homes-based platforms.
The growth of Apartment Hotels has been outpacing that of more traditional hotel rooms in recent years and the asset class has really proven itself during the pandemic. From an investor perspective, hotel apartments reflect the continuing strong demand for apartment housing. One of the major drawcards for investors is the sector’s lean operating structure and the higher-than-average length of stay, ensuring minimal staff are needed to assist with the day-to-day management. Gross operating profit margins typically range 45%-65% while also providing a structure that is well placed to weather demand shocks.
This Is Global
Apartment hotels are not just a phenomenon in the United States, but also is seeing tremendous growth in Europe as well. Currently, capital and gateway cities across the UK and Germany account for the majority of upcoming developments. Other developments are likely to spring up in secondary and tertiary cities to keep up with demand. According to a Savills report, European apartment hotels investment in 2019 exceeded the previous five-year average by 16.6%.
Savvy investors and consumers should keep a discerning eye on this trend. It likely will be the next wave for the hospitality industry. Interested in learning more about opportunities in this sector? Give us a call for more insights and current Apartment Hotel projects.