The fundamentals of the extended stay market in London and UK remain positive. The lack of abundant supply and the small percentage by which anticipated supply is expected to grow in the segment, offers both near and long term potential for those properties that specialize in the long stay sector of the overall lodging industry.
Eduard Elias, Managing Partner of Cycas Hospitality, believes the Brexit situation is likely to have a positive impact on the extended stay property market in the UK.
- The foundations of the market remain overwhelmingly positive – the economics of the extended stay property market are, of course, dependent upon the relationship between supply and demand. The supply of properties remains low, but demand seems set to remain at or near current levels for the foreseeable future – wider factors such as Brexit notwithstanding.
Research into demand for rooms in Greater London by Savills supports this. The market is still growing and, at 10.5% below the all-time peak, it has yet to hit the kind of business travel levels last seen in 2006. During 2015 the RevPAR or ‘Revenue Per Available Room’, figure grew by an annual 3.1% within the sector, clearly demonstrating a robust underlying industry structure.
The UK extended stay market is still nascent – In London, the market for extended stay hotels or serviced apartments represents something under 2% of the total room stock, whereas in the US this figure is approximately 8%. All trends show that demand for serviced apartments and extended-stay hotels of all types, will continue to grow. The market is showing a growth pattern which mirrors what happened in the USA two decades ago.
- The fall of the pound against currencies from around the world may work as an advantage by making the UK a more attractive and affordable leisure destination for travellers from the likes of Europe, Asia and the US.
This view is supported by Oxford Economics which predicts “although the longer term impact on overall UK domestic economic activity will be negative, there is a potential positive impact for the hotel industry, due to increased affordability of the UK and London as a destination, derived from a weaker exchange rate.”
We have seen direct evidence of this. Immediately after the Brexit vote – when the Pound dropped in value – pre-paid bookings in our London hotels went through the roof!
- The growth of Airbnb highlights the opportunities in the extended stay market – Airbnb shows a move away from the standard hotel offer within the leisure market, and towards larger units or self-contained apartments. This is an untapped market which is ripe for exploitation. A trend from which we extended stay hotel operators benefit as well. Although their focus is strongly on corporate guests, we see more and more, that leisure guests find extended stay hotels attractive alternatives to traditional hotels, despite the limited marketing done towards this leisure market.
- Historically, long stay hotels outperform the standard model during times of recession. Cycas witnessed this phenomenon first hand in 2008, when its Liverpool hotel opened and thrived at the very moment that the economic crisis hit and other parts of the hotel market began to suffer.
The extended stay hotel sector in the US, which suffered a drop in room revenues in 2009, rallied soon after in 2010 and has experienced steady yearly growth ever since, growing to circa $10 billion market.
This is seen in the graph below, which shows a small dip in demand in 2009, but a quick recovery thereafter.
Going back further in time; Hotel Online reported in 2002, “Extended-stay has held up relatively well in the recession because it caters to people working temporary jobs and looking for work, local executives say. It also appeals to budget-conscious business travellers.” As evidence, during the crisis following 9/11, during the first quarter of 2002, “extended-stay properties were 70 percent full, compared with 55 percent for all hotels”.
Looking at the past one can conclude that if there is one segment of the tourist accommodation market that has weathered economic downturns and contraction in visitor numbers, it is the extended stay segment, or serviced apartments.
The Cycas Hospitality experience within the sector clearly demonstrates the following facts, all of which contribute to this underlying strength:
- Although transient demand often softens in a downturn, project work is harder to postpone, as the advanced planning is more complex and harder to ‘unwind’.
- Companies seeking longer leases for project work prefer the flexibility and ease of booking a long stay apartment over making a commitment to a house or flat
- If the wider economic conditions lead to redundancies it is often safer for businesses to contract for work using temporary or contract staff. These temporary ‘employees’ are unlikely to buy or rent a permanent residence so are more likely to opt for ‘temporary’ accommodation
- The growing popularity of apartment style accommodation – as evinced by the rise of Airbnb – should provide a growing leisure market for extended stay accommodation which, boosted by the falling value of the pound, is capable of providing a viable bulwark against any temporary drop in corporate demand.
Put all of these factors together, throw in the international appeal of a weaker pound, and you have a picture of a sector well placed to cope with any future turbulence.
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www.cycashospitality.com
Cycas Hospitality is a hotel management company specialising in extended-stay hotels. It combines hands-on skills in hotel management with real estate investment expertise. The company currently manages Staybridge Suites London – Vauxhall, Holiday Inn London – Stratford City, Staybridge Suites London – Stratford City, Heathrow Hotel – Bath Road and Staybridge Suites Liverpool, the first Staybridge Suites hotel in the UK. Two new projects under construction include a Crowne Plaza / Staybridge Suites in Manchester and a Moxy / Residence Inn in Amsterdam.
