A new and dynamic era has begun for the serviced apartment industry and our latest Serviced Apartment survey reveals a landscape marked by robust performance, adept cost management, and a positive outlook.

Profitability has not only bounced back to pre-pandemic levels but is also being driven by a surge in leisure demand and a booming interest in serviced apartments.

This renewed enthusiasm is drawing significant investor attention, prompting both established brands and new players to expand and innovate, setting the stage for exciting growth and transformation in the industry.

Operators' Sentiment

A page has been turned; a new chapter begins. Following challenging years of performance recovery, merciless inflationary growth and continued geopolitical turmoil, most agree that the European hotel industry has come out of the worst portion of the cycle. The feedback from our Serviced Apartment survey confirms robust performances, controlled cost management and an overall positive outlook going forward. Operators have witnessed a full rebound of profitability margins comparable to pre-pandemic levels, despite occupancy still lagging slightly. The recent growth in costs has been absorbed thanks to greater increases in average rates.

More recently, leisure demand has been a strong segment for serviced apartment operators, and some have noticed a continued increase in the first half of 2024. As this allows occupancy to grow, the flip side of the coin is that this type of segmentation tends to shorten the average length of stay in serviced apartments, bringing the model a little bit closer to that of traditional hotels.

The source of demand is also influenced by the growth in popularity of serviced apartments and the ensuing growth in supply observed post-pandemic. Seen as the star pupil during the downturn, the concept has caught the attention of investors, and properties have multiplied with more in the pipeline.

Among the more well-known brands, we note that the Marriott serviced apartments portfolio (which includes Marriott Executive Apartments and Residence Inns) increased by 25% between 2019 and 2023. Beyond the push of existing brands, we have also witnessed the creation of new brands in larger operating platforms and a range of independent contenders, such as The July and The Other House.

This supply growth, whilst meeting new trends in demand and travel fashions, also creates pressure and warrants flexibility to fill the new units. This also contributes to the length of stay decrease and to the potential loss of competitive edge of this distinct cost model.

A mitigating factor is the gradual return of corporate demand. The expectation is that the ramping of business travel will fill the occupancy gap and that by doing so the length of stay will return closer to pre-pandemic levels.

The concept of bleisure continues to be in the spotlight. Increasingly, guests are choosing to extend their stay to enjoy a destination after working hours or on the weekend and therefore seek the comfort that serviced apartments offer.

Moreover, many companies have embraced remote working which, for many, has become an integral part of office life. Brands are emphasising co-living concepts, social spaces and clever designs, in order to target digital nomads. This thriving new generation of travellers chooses to explore the world while keeping their 9 to 5, and see an appealing solution in serviced apartments by having access to more space, a sense of community and amenities.

The following chart presents an overview of the recent average rate and RevPAR performance in Europe, as provided by the main Serviced Apartment operators in the market.

When it comes to expanding their brands, operators are looking at doing so on two fronts: geographically and with the development or creation of brands.

Operators who participated in our survey expressed an interest in developing in southern Europe, with Italy, Spain and Portugal the main targets. Western Europe also remains an appealing market, such as France, Germany, the Netherlands and the UK.

These expansion plans are being progressed via management agreements and leases mainly. Overall, operators are still relying on the same operating models that they have historically worked with, although some are also looking into developing more management agreements than they have in the past. While not commonly referred to, select brands are also increasing their franchise pipeline.

For instance, Adagio particularly focuses on its franchise pipeline. Indeed, since 2018, Adagio has quadrupled its franchised network from five aparthotels then to 28 today, representing around 20% of its portfolio now. As a result, Adagio will target two-thirds of future openings to be carried out using the franchise model. By 2030, the brand aims to increase its proportion of franchised properties to 35%.

Read the full survey here