This article is certainly not the place for a detailed recap and a minute-by-minute report of the evolution of the pandemic, however, we highlight that the serviced apartment sector, despite suffering alongside the traditional hotel sector, has been weathering the storm better.

2020 will undeniably be a year to remember. Unfortunately, not for great reasons. The hospitality industry is going through arguably the worst crisis it has experienced in a generation. Every day we are inundated with news about COVID-19: case numbers, vaccine trials, lockdown restrictions and its impact on travel, tourism and the wider economy.

So far, the picture has been quite discouraging, despite some green shoots during the summer months.

• Self-contained product. The serviced apartment product is geared towards longer-staying guests and thus lends itself to comply easily with COVID restrictions by offering more spacious, self-contained units including the ability to cook or prepare meals (kitchen or kitchenette) as well as appliances such as washers and dryers.
  
  Hence, the interaction a guest has with staff and other guests is minimal compared to a traditional hotel. This bodes well in times of social distancing and gives consumers additional confidence to stay at serviced apartments even with COVID restrictions in place.

• Lean operating structure. The underlying business model of the serviced apartment sector is characterised by limited staffing and services owing to a longer average stay, translating into a very lean operating structure and hence an attractive gross operating profit margin (usually around 45-65%).
  
  During a demand shock such as COVID-19, revenue can fluctuate significantly in a short period of time; a low operating expense structure helps to better absorb those demand shocks. Despite temporary furlough schemes that most European governments have put in place since the onset of the crisis, the hotel industry had to cut down on operating expenses much more severely in order to avoid gross operating margins and EBITDA levels turning significantly negative.
  
  A large number of serviced apartments continued trading through the lockdowns and, despite a decrease in revenue, were able to cover their cost base and break even during Q2 and Q3 2020, and some did better than that.

• Young and dynamic players – ability to adjust. Most organisations in the serviced apartment sector are very young compared to their counterparts in the hotel sector, which means they have been able to react quickly to a changing market environment and shown a great deal of agility in these unprecedented times.
  
  Starting with the implementation of cleaning and safety protocols as well as further improving the technology for a contactless customer journey, they have been at the forefront of reinventing themselves and adapting the product to suit the needs of travellers in the current times.
  
  A flexible approach in regard to replacing segments that currently are falling away (such as international corporate or MICE, for example) with leisure demand and other sources (such as government, key and healthcare workers, and people self-isolating) as well as a wide range of short-term rentals to long-term tenancies highlight the spectrum this asset class can cater for. The fact that a large number of serviced apartments stayed open during 2020 also made it not only optional but essential to implement those changes quickly and effectively.

Share of the Portfolio that Continued Operating During Lockdown (%)

Source: HVS Research

Seizing the Opportunity – Creativity at its Best

Despite the exceptional nature of the current situation, there have continued to be announcements in terms of product and brand expansion. And precisely because of the change in needs brought by the pandemic, this year has seen some rethinking and reshaping of the industry’s offerings.

Zoku has shown a great deal of creativity in trying to adjust to the current circumstances. It announced Zoku WorkLofts: a private WorkLoft for the day with early check-in, an overnight stay plus access to all Zoku amenities and a complimentary breakfast, lunch and dinner throughout the stay. Zoku also puts together ‘COVID-safe events’ whereby, for example, it teams up with five pop-up food and beverage chefs for catering and cocktails as well as surprise entertainment all from the comfort of the guest room before a good night’s sleep.

Locke has announced that it will open its first properties outside the UK. The boutique aparthotel brand – which currently operates sites in London, Edinburgh and Manchester – will expand internationally within Europe, with units set to open in Ireland, Germany, Portugal and Denmark in the next four years.

The family-owned real estate investment and development company Lamington Group has accelerated the launch of room2 lite. Under the room2 brand, the group created the hometel concept, described as a space between home and a hotel. With room2 lite, there is an opportunity to replicate the success in the budget sector.

The first extended stay product under the Radisson brand in Western Europe will open in Amsterdam in early 2021. The 227-suite Radisson Hotel & Suites, which will be operated by Cycas Hospitality, will offer studios, one- and two-bedroom apartments, all with fully equipped kitchens.

Hyatt recently announced the opening of its first dual-branded product in mainland Europe, Hyatt Place Paris Charles de Gaulle and Hyatt House Hotel, both to be managed by Cycas Hospitality. With 121 apartment-style suites, Hyatt House becomes the first extended-stay accommodation offering in the area.

Queensgate Investments and Rockwell have been given permission to redevelop the 906-room Holiday Inn Kensington Forum hotel, located in west London. The £1 billion plan will replace the existing hotel with a mixed-use complex comprising a hotel, serviced apartments, affordable homes, and a publicly accessible garden square.

CitizenM, a traditional hotel brand, has expanded its business model to adapt to the changing demands of business travellers, capturing some longer-stay guests during the pandemic. It now offers subscription-based reservations for remote workers and digital nomads: a corporate subscription which allows clients to work at the hotel, sleep for a number of nights a month and use other hotel facilities, and the global passport, a fixed rate for one-month stays.

A COVID-19 Update from Industry Players

We thank all the survey participants for their generous input into our study. Your opinions and experiences are crucial in facilitating understanding of this thriving sector. We urge more operators, investors and lenders in the sector to recognise the value of sharing data to enable serviced apartments to continue to gain more attention from potential investors.

To evaluate the impacts of the COVID-19 pandemic on the serviced apartments sector, HVS conducted a survey capturing the insights of 34 major industry players, including operators, lenders and investors. We highlight the main findings in the following paragraphs.

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