Serviced apartment and extended stay industry trends for 2022

SAN editor George Sell looks at some of the key trends that will shape the global serviced apartment and aparthotel sector in 2022.

• New opco/propco players across extended stay

The extended stay sector on both sides of the pond is bucking perhaps the most significant trend in the entire hospitality industry of the last 20 years — the wholesale adoption of the asset-light model.

While going asset light offers operating companies more scale for rapid growth, an increasing number of major players are betting on the strategic advantages and synergies that come with having opco and propco under the same ownership, and importantly — with an aligned vision.

In the US, Blackstone and Starwood Capital’s $6.3 billion acquisition of Extended Stay America sent out a statement. ESA owns the majority of its 650-odd hotels, making it to my knowledge the biggest owner/operator in the world. It is now primed for serious growth, with CEO Bruce Haase talking of up to 1,000 properties.

Co-owner Blackstone is continuing its acquisition spree in the space too, with the recent addition of the 15-strong Condor Hospitality Trust portfolio.

Condor was a Real Estate Investment Trust (REIT), and there are other growing REIT players in the extended stay space such as Sandpiper, which is steadily acquiring hotels, with its management arm in many cases operating the properties.

And Service Properties Trust (SVC), a major owner of extended stay hotels, which has a significant stake in hotel company Sonesta, made some serious waves during the pandemic when it switched more than 200 hotels which were badged under various IHG and Marriott extended stay flags to the Sonesta Suites badge.

Here in Europe, Brookfield and edyn are showing the benefits of aligned ownership, with the Locke brand opening an impressive six properties in 2021 — and having an even stronger pipeline for next year. Dutch pension fund APG is also getting in on the act, and is busily acquiring properties for Amsterdam-based City ID and London-based The Other House to operate.

Just last week, Fortress Investment Group acquired a majority stake in Dublin-based PREM Group, and I suspect part of the attraction of the deal was that PREM owns a significant number of the 38 serviced apartment and hotel properties it manages.

I don’t expect the likes of Marriott and Hilton to suddenly go on an asset shopping spree, but over the last two years, when landlord and tenant relationships have been tested like never before, the extended stay space is leading the way when it comes to exploiting the numerous benefits of close alignment between owner and operator, a trend I expect to gain momentum in 2022.

• Green finance to the fore

The sustainability agenda is affecting all areas of hospitality and real estate, and perhaps the area with the most potential to accelerate the adoption of sustainability practices is that of green finance.

While still in its early stages, there is evidence beginning to emerge that companies and building projects who can meet a lender or investor’s green criteria are likely to enjoy a substantially lower cost of capital.

In its recent report on green finance, AHV Associates cites research from French asset manager Amundi which suggests that the average so called “greenium” on green finance products (lower interest and coupon rate payments, for borrowers and bond issuers, respectively) is between 15 and 25 basis points.

AHV also refers to the widely publicised Whitbread green bond offering. The company issued two green bonds in February 2021 which suggest that the greenium in hospitality could be as wide as 70 to 132.5 bps cheaper than the equivalent cost of finance for a similarly rated issuance. Importantly, these savings are
readily apparent when looked at in relation to the overall cost of financing, equating to a 10 per cent saving in the wider market and rising to as much as a 35 per cent saving in hospitality, it says.

There aren’t many concrete examples of companies in the serviced apartment and extended stay sector securing better financial terms due to their ESG performance, but pioneers in this area such as Beyond Aparthotels and room2 are leading the way where others will undoubtedly have to follow in 2022 and further in to the future.

• The extended stay/BTR crossover

There is an intriguing overlap between some of the more progressive BTR operators whose main focus is offering residential rentals which are their tenants’ main address, and the mid to long stay element of the business travel market. Fizzy Living, for example, has introduced minimum lengths of stay from as little as three months.

The company, which owns and operates seven locations in and around London, has also partnered with payment technology provider flatfair to offer tenants deposit-free renting.

This puts Fizzy Living’s offer squarely in the project work and relocation arena, and I think we will see a big move among BTR players next year to focus on corporate tenants. It is also reportedly an acquisition target for US multifamily giant Greystar, and if the deal were to go ahead it would give Fizzy Living access to a huge corporate travel client base.

I can’t help thinking that the skill sets involved in managing serviced apartment buildings and BTR assets are very similar and am surprised that more companies haven’t followed the example of Native, which began life as an aparthotel operator but now has a far bigger BTR presence than it does in the serviced apartment space.

Native has more than 3,500 BTR units under operation or in development, and with an increase in mixed-use projects which include both BTR and hospitality uses, it makes for an operator to be able to manage both.

Of course there are examples of this already — Cheval’s Three Quays property by Tower Bridge in London has separate wings with C1 and C3 planning consent, and caters for both long-term residents and short-stay aparthotel business — something I think we will be seeing more of over the next few years.

• Further consolidation in the agency space

In the last year or so we’ve seen quite a bit of consolidation and M&A activity in the agency space. SilverDoor acquired The Apartment Service, while National Corporate Housing took on on BridgeStreet’s agency business and several other additions.

With BridgeStreet exiting, and Oakwood selling its agency arm to Dwellworks, the once common hybrid agency/operator model is now, aside from a couple of deals by National, only represented at any scale by Synergy. That particular company is on a growth trajectory and has been busy hiring in 2021, as well as launching its REVE innovation lab.

While we are seeing streamlining and consolidation at the scale end of the market, it is likely that future deals will be the bigger players adding smaller niche outfits who add a particular skill set to the acquirer’s suite of offers. National’s acquisition of The Relocation Consultancy is a good case in point.

The main reason for this — and also a reason why we are unlikely to see a significant number of new players enter the space — is that launching a new agency from scratch is a time consuming and very expensive process.

Bespoke software platforms are very complicated and very costly to create, and that’s before we factor in the time spent forging relationships with travel buyers and accommodation providers, and convincing them of the benefits of working with a new entrant to the market.

So acquiring existing players to fill in gaps — either in terms of geography or skill sets — is the logical and likely way for the main players in the agency space to grow in 2022. SilverDoor’s Alex Neale summed up the situation nicely on our SAN trends webinar when he said: “Having two UK-based agencies we’re likely to focus on other strategic markets as our first priority. I think there is potential in EMEA and Central Europe, or in the Americas. We’re continually looking for the right fit and we’ll consider all acquisition opportunities as they present themselves.”

• OTAs under pressure from alternative distribution players

Elsewhere in the distribution landscape, while the major OTAs such as Booking, Expedia and Airbnb, are ramping up their efforts to win more business travel, they are facing competition from a diverse and growing range of alternative and specialist distribution players.

Many serviced apartment operators have been heavily reliant on OTAs and a significant number list short-term and weekend inventory on Airbnb.

But the pandemic has given many a chance to take stock and review their distribution strategy — some are focusing more on direct bookings and others are looking for new channels.

edyn is now using SiteMinder’s platform to reach travellers in European markets, through more than 400 distribution channels that include OTAs and vacation rental booking sites. It has also made its own extended-stay platform available as a distribution channel to other serviced apartment providers that use SiteMinder.

Sonder has also launched on the GDS and has partnered with a number of high-profile travel management companies and consortia, including Egencia and TripActions.

One of the more intriguing developments has been the the launch of JLL Short Stays, a booking platform offering business and leisure travellers professionally managed and fully flexible accommodation in the UK, in a bid to compete with the major OTAs in the segment.

Billed as a more professional alternative to Airbnb, the platform has more than 1,000 listings available in towns and cities across the UK, including London, Manchester, Bristol, Edinburgh, Cambridge and Birmingham, offering fully-serviced accommodation from anything between three nights and 12 months.

Homelike, an online marketplace for 30-plus day furnished apartment rentals, is expanding in to the US. Starting in New York City, the company, which currently hosts 100,000 furnished apartments across more than 500 European cities, plans to further expand its US operations to new markets in 2022. And a new wave of corporate housing solutions providers such as AltoVita are gaining prominence in the market.

There are also likely to be more distribution options for niche markets such as London-based Equinox Travel, a TMC specialising in travel services for the music and entertainment business, which launched last month.

Factor all these players in with the agents referred to above, and 2022 will see an unparalleled choice of distribution options for serviced apartment operators.

• Corporate travel driving sustainability agenda

ESG investment has been a buzzword for some time, but ESG policies are now filtering down to corporate travel decisions — and serviced apartment operators are going to need to be able to demonstrate what they are doing to tick the right boxes on travel buyers’ sustainability wish lists. Those wish lists are getting longer, according to Jo Layton of CAP Worldwide.

In many cases, it is a specialist serviced apartment agency such as Layton’s which will do the vetting on behalf of their corporate clients, and if an operator isn’t doing enough, it will quickly drop off corporate travel programmes.

A quick look at recent activity in the wider business travel space gives a clear indication of the way 2022 and 2023 are shaping up, and operators simply can’t afford to bereft behind.

The Business Travel Association is instigating a three-step ESG campaign from January 2022 in a bid to fulfil the United Nations’ Cop26 goals. The first step will be to benchmark the industry’s current position and investigate its future expected activities against the UN’s 17 ‘Sustainable Development’ targets.
In-depth interviews with senior stakeholders across the sector will underpin the campaign, resulting in a major report to identify areas needing prioritised sustainable development across the entire business travel supply chain. Diversity, equality and inclusion will also be targeted by the campaign, and a ‘Roadmap to a Sustainable Future’ will be published by the autumn.

BTA chief executive Clive Wratten said: “The entire industry needs to view ESG through a wider lens. We have always known that carbon offsetting alone is not enough, and that more must be done internationally and domestically to ensure that sustainability is intrinsically weaved throughout the travel supply chain from flights, to rail, to hotels and cars. This campaign is a critical first step in our pathway to net zero, providing us with a clear direction to make this goal a reality, as business travel once again becomes a valued part of normality.”

Professional services giant PwC says: “Business travel remains our single largest source of carbon emissions, and — as we’ve continued to reduce our emissions from energy — has grown to around 90 per cent of our reduced carbon footprint. Business travel is a necessary part of the way we work, as our ability to serve our clients largely depends on being able to visit their locations. It’s also important for building relationships, which is at the core of our brand. However, we continue to challenge ourselves on the need, frequency and mode of travel. Between 2007 and 2017 we reduced our carbon emissions from business travel by four per cent, while almost doubling the size of the business. Building on this, and as a key part of our target to reduce our total carbon emissions by 40 per cent by 2022, we’ve set a new travel intensity target to reduce our emissions from business travel per employee (FTE) by 33 per cent.

Tristan Smith, vice president commercial — SMEs at Egencia, says: “The question companies must tackle now concerns the kind of travel programmes they want to build. What’s the right balance between protecting the organisation’s bottom line and creating a set of policies that better reflect the environmental and social aims of a responsible business? The technologies required to support this transition already exist. Duty of care features, which strengthen a company’s connection to its travelling employees, equip travel managers with advisories and alerts, and enable the provision of on-demand support in times of disruption. Similarly, sustainability tools exist that can help travellers compare the environmental cost of their travel choices and enable travel managers to measure the overall carbon cost.”

Do you agree with me? What do you think will be the most significant industry trends in 2022? And how did I do on our 2021 trends?
Drop me a line at
george@internationalhospitality.media and let me know.

This story was originally posted on ServicedApartmentNews.com

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