Serviced flats are a special form of micro-living. As temporary flats with hotel-like services, they have developed into a wide-ranging offer that appeals to very different user groups, from 'young professionals' to project workers, business travellers or interim managers. Like hotels, the properties are considered commercial real estate, but allow stays of up to 6 months. In asset management, serviced flats are often used to diversify and increase the yield of residential portfolios. Or they are managed as special AIFs for institutional investors, such as the recent ProReal Kapstadtring project from the Hamburg-based One Group. Yields of between approx. 4-7 % can be achieved with the asset. Lease or management contracts are used.
Crisis resilience demonstrated
Following the coronavirus crisis, occupancy figures for serviced apartment buildings increased significantly again in 2022. According to a survey by Apartmentservice, providers not only achieved the required minimum occupancy rate of 75 to 80% last year, but in some cases far exceeded it. Ipartment, for example, recorded a full occupancy rate of 93%, which is higher than the pre-coronavirus level of 90%. The demand for temporary living space in properties that specialise in their users therefore remains high. Unlike hotels, serviced flats are a niche product (4.9% of the hotel market/ Market Report Apartment Service 2022), but have proven to be very resilient and flexible in terms of cost management, especially during the coronavirus pandemic.
Despite the sometimes severe slump, the houses recovered as soon as the political measures were withdrawn. During the crisis, adjustments could be made directly: via pricing, more digital tools and additional target groups, although the losses could only be compensated for to a limited extent. Operators with investor participation had an advantage in terms of liquidity and market position. Today, the renewed high turnover of many operators shows that the serviced flat asset is continuing to establish itself after the big test.
Increase and manage growth
According to current figures from Apartmentservice, there will be almost 45,000 serviced flats in 800 buildings in Germany by the end of 2022. A total of 80,000 to 85,000 units are expected by 2030 despite the difficult economic situation in the construction sector. Growth in the segment is now expected to continue at a somewhat slower pace of 37% by 2024, but remain at a high level. The ipartment Group, which specialises in business clientele, is also growing at a similar rate and is expanding its portfolio of 14 properties by three further properties with 260 new flats in 2023. The aim is to increase sales by 18 to 20% and three additional properties are also planned. In co-living products, providers such as Habyt and Colonies are also focusing on expansion.
As a serviced flat operator, there are various instruments available to manage growth in the market, e.g. via pricing, length of stay, new openings and special services. Depending on the operating concept, for example, more short- or mid-stay offers can be introduced in order to achieve higher-priced bookings per night. At ipartment, up to 25 % of short stays of less than 29 nights can be integrated. The two large locations at Frankfurt am Main Airport (177 units) and Berlin-Brandenburg Airport (from 2023 / 156 units) and Braunschweig Airport (120 units) were selected for this purpose. Nevertheless, the operating concept here allows booking prices to be kept moderate.
ipartment is in the mid-price segment with high quality, on the one hand through specialised services for business people, from laundry service and bicycle rental to breakfast on demand, and on the other hand through high-quality, feel-good design furnishings - a price-performance ratio that certainly contributes to above-average occupancy. Generally speaking, serviced flats with residential offers in the mid- to long-stay segment score over hotels or other commercial assets with high planning security, a diverse guest clientele and relatively low management costs. This means that operations can be managed in line with demand. At the same time, serviced flats as commercial offers are hardly subject to any regulations such as rent indexes or rent caps.
Operator concept decisive
For a serviced apartment building to be managed successfully, it requires precise market positioning. This means that in addition to the location with excellent infrastructure, such as in large cities or in selected B, sometimes C locations, the operator concept is crucial to the success of the properties. Ultimately, the aim is to open up a lucrative niche for your own product in a niche market. Some focus on coliving, community concepts for young professionals, with socialising opportunities and communal areas.
ipartment focuses on an upmarket business clientele that takes care of itself and values restraint. Others are focussing on exclusively digital rentals with mixed user groups and completely foregoing a reception with on-site staff. Even before coronavirus, ipartment had begun to digitise its properties, relieve the burden on staff and offer guests autonomous, simple processes. Digitalisation will be a "must" for every hotel in the long term. It is important that there is a coherent hospitality concept, as digitalised processes alone do not guarantee successful operations.
Hospitality concepts for lasting success
According to GSAIR 2022 (The Global Apartment Industry Report), surveys have shown that high-speed WiFi ranks first in guest ratings, followed by cooking facilities, 24-hour service and in-house services. In practice, it has also been shown that personalised guest care can make a significant contribution to a property's profits. Example: An ipartment property in Frankfurt is located in a railway station area with a difficult neighbourhood. The guest service agent managed to increase the booking rate by 20 % within six months and maintain it at a high level by offering personalised attention, pick-up services and short tours of the district. The strong customer loyalty is also reflected in the fact that around 80% of all bookings are made via the hotel's own website. A location-appropriate hospitality concept is therefore the key to ensuring stable capacity utilisation.
Conclusion
Serviced flats as an asset are based on three central pillars: the good location, the special facilities and the operating concept. Occupancy can be planned to a large extent and is secured for long periods of time. There are a large number of interesting and profitable operating concepts with different strengths and weaknesses on the market. Ultimately, it depends on the operator how he sets up the operating concept and knows how to manage the performance of his properties.
Guest article by Matthias Rincón, Managing Partner of IPARTMENT GMBH
