Investment Opportunities in Serviced Accommodation

This type of company is generally a disruptive business. The Ford Model T revolutionised the car industry; Dyson did the same for the vacuum cleaner; Amazon took advantage of the Internet to change the way we purchased books all sorts of other products; and now AirBnB have made it simple to book accommodation not in hotels but in people’s homes.

Who does not like to be nosy by looking at how other people live and how their homes reflect their lifestyle and personal taste in home decor and furnishings? It seems therefore that AirBnB really did hit the sweet spot.

While most people will have stayed in a hotel at sometime in their life, they now accept that there are alternative accommodations. The term “serviced accommodation” relates to property that delivers somewhere to eat and sleep but in a property that offers the much more than a conventional hotel by including a fully fitted kitchen, a lounge area in which to relax and additional bedrooms for the rest of the family all within one property that will offer a “home from home” experience.

They have raised the bar so this type of accommodation is now what most people when traveling for both business and pleasure want to stay in. They want somewhere that is flexible so they can stay for a night, or longer; and where they can enjoy spacious accommodation, home comforts, the opportunity to cook a meal to save the cost of eating out at a restaurant; the chance to catch up on their washing and above all, the opportunity to share their experiences with the host, as and when they are resident.

The other contributor to the success of serviced accommodation has been technology. Without this it would not have been possible for the model to gain traction and therefore attract hosts to register their properties, at the speed they have.

Guests have benefited too by having the power and speed to locate properties at the click of a button, possibly for booking on demand; having a friendly person to communicate with throughout the booking process; and having peace of mind, knowing that previous guests have written reviews to say how wonderful the host and property was.

It seems that now travelers have experienced AirBnB, and other online travel websites, as leisure guests they are now insisting that their employers allow them to use the same option for their business travel.

This market is therefore expanding at rapid rate. Research suggests that there are now about 750,000 serviced apartments worldwide – an increase of 80% in just 8 years. In the UK, serviced accommodation supply is expected to grow by 8% in the two years leading up to 2017, outstripping the growth of hotels at 6% according to research performed by Savills, the estate agent.

While supply has increase so has demand. It seems that over 36 million overseas visitors came to Britain in 2015 – an increase of 50% over the previous 12 years. The number of UK residents taking a holiday at home is also on the increase especially as the exchange rate between sterling and both the dollar and euro has depreciated following the referendum vote to leave the EU. This would suggest a long term boom for the British tourism industry and an unprecedented demand for overnight accommodation.

The location and the facilities on offer are the two major contributors to higher occupancy levels. If a property is situated close to good transport links, major companies and popular tourist attractions; as well as being well furnished and fitted it to a high standard it will be popular with guests and therefore be in demand.

Obviously, nobody is forecasting the imminent demise of the hotel industry or the private rental accommodation sector as a whole because they are both substantial but anybody with an eye for a property investment with a generous long-term fixed yield income could do a lot worse than investigate this emerging property investment sector.

Private individuals have often invested in HMO multi-let properties to secure a higher rate of return but recent UK tax changes have made this proposition less attractive.

Now that the serviced accommodation sector is growing at such a rapid rate, there are greater opportunities to realise a higher rental income on these compared to HMO’s. One just needs to be certain that demand and therefore occupancy levels are sufficiently high to provide the margin required to deliver a healthier rate of return than one achieves when leaving money in bank savings accounts.