According to Savills, based on what is under construction and with final planning, the supply of serviced apartment stock across Europe is set to accelerate, with supply forecast to expand by 21.2% over the next three years.
In 2021, investment into European serviced apartment market reached €496.6 million, down 42.9% compared to the same period in 2020, as stock shortage limited transactional activity, says Savills.
The UK remained the biggest market, accountable for a 47.0% share of volumes, in line with the five year average of 46.6%. Germany and France ranked second (18.4%) and third (17.3%) largest by investment volumes.
London continues to be the biggest growth market with just under 3,000 units in the committed pipeline, reflecting a 26.7% expansion on current stock levels, followed by Munich with a 24.7 % increase.
Marie Hickey, Director, Commercial Research, Savills, comments, “Interestingly, beyond London and Munich, it is key regional and emerging destination cities, namely Istanbul and Manchester, that rank in third and fourth place. Stuttgart (5) and Belfast (10) lead in growth terms with 372% and 337% respectively.”
“This shift reflects a combination of rising developer and investor awareness of the sector and its operators, alongside operator appetite to expand into new, relatively under-served markets. These markets also tend to present a greater degree of opportunities as do submarkets within well-established cities such as London and Munich.”
Based on the committed pipeline, Savills observes that the largest branded groups in supply terms are Staycity, Edyn and Adagio Aparthotels, and these three will account for 22.9% of the total pipeline, representing an average growth in stock of 45.1% over the next three years.
Richard Dawes, Director, EMEA Hotels, Savills, comments, “Serviced apartments are continuing to prove popular with investors. The leaner cost structure coupled with the relative operational resilience during the pandemic have emphasised the sector’s less volatile cashflow, relative to the wider hotel space and potential for tighter yield dynamics going forward.
Looking ahead the market fundamentals are looking extremely positive. Stock levels are set to expand and the appeal of serviced apartments is likely to endure in line with the increasingly nomadic nature of work and the rise in the length of stays due to environmental concerns.”
Since 2018 Savills has recorded that institutional buyers have accounted for 56.1% share of European serviced apartment transaction volumes, exceeding the 50.9% share across the wider hotel market over the same period.
“Future stock expansion will provide more opportunities in regards to specific asset acquisitions, with forward funding deals likely to lead over the short term,” suggests Richard Dawes. However, for those investors seeking more meaningful exposure to the sector, direct investment into new and existing operators and/or platform acquisition is likely to prove equally attractive. With 60% of current European stock still unbranded, there is still significant opportunity for brand expansion, and we expect to see more private equity vehicles enter the market, backing new and existing operators in order to help establish and drive platform expansion.”
