Should you be investing in Apart-hotels?

Aug 13, 2018

The needs of business and leisure travellers are constantly evolving. In recent years, the serviced apartment industry has grown more than any other temporary accommodation class. This is a result of globalisation and the need for workers to travel more frequently, and the needs of holiday makers changing to suit new family dynamics.

To fulfill this demand, developers are becoming increasingly savvy to a new type of accommodation, fusing resorts, hotel rooms and traditional serviced apartments. Apart-hotels are essentially fully furnished flats that have similar amenities to hotel rooms and can be used for either short-term or longer-term stays. Benefits of staying in a serviced apartment over a hotel room include more privacy, flexibility, and space. For apart-hotel rooms in resorts, families can experience a more home-from-home holiday.

From an investment point of view, the evidence of apart-hotel popularity lies in occupancy rates. Serviced apartments in the UK averaged an 81% occupancy rate in 2016, and outperformed hotel rooms which stood at 77.2%.

The longer than average duration of stay, coupled with lower running costs, means that serviced apartments generally achieve higher net operating incomes compared to traditional hotels.

These factors ensure that there will be a sustained requirement for the apartments from tourists and business travelers alike and investors, traditionally used to the buy-to-let model, should be considering options like this to diversify their international portfolios.

Apartment hotel Suites offer an outstanding investment opportunity and excellent monthly returns, whilst presenting the same security of ownership as a traditional buy-to-let property.

Advantages of investing into apart-hotel rooms

  • An attractive fixed rate of return, usually guaranteed
  • The investor has no risks pertaining to the management of the hotel including maintenance
  • Apart-hotel rooms earn steady returns and offer the same security of ownership of traditional property
  • In some cases, hotel rooms can also be reserved for personal use: many investors and management companies agree on a timeframe during which the investor can enjoy his purchase
  • Apart-hotel rooms are a profitable and alternative option for investors looking to diversify their portfolio
  • Risks when investing into apart-hotel rooms
  • The management of the hotel may not be the investors issue, but that investment is essentially subjected to the marketing policy of the company.
  • Exit strategy will require further consideration as this is not a standard property
  • Many of these properties are cash only investments
  • Availability for investor’s personal use can be tricky, particularly during the high season.

Hurst & Wills top tips

  • Like any property, location, price and what the market is looking for is the first rule of due diligence.
  • Check exactly how long the lease runs for, and the terms of the lease
  • Investors should be considering buildings with high quality facilities in prime central locations, with easy access to transport links and the area’s attractions and amenities
  • Investors should also review the return and determine if the advertised is a NET return, and whether it includes service costs and maintenance.
  • If you are buying into apart-hotels offshore, make sure you know the market, and seek professional advice from those that do. As with any offshore offshore investment, you will need to do extra research.

Hurst & Wills believe that the serviced apartment market is a great complement to an international investor portfolio and can recommend the best options across the globe. We have a selection of opportunities from Mauritius to South Africa, to Europe and the UK, a couple of which are below:

Apart-Hotel: UK

Located in the UK’ss number one city for property investment, CitySuites Manchester is a striking, fully-glazed 17-storey residence with 260 luxury serviced apartments located in the prime area of Manchester’s City centre, perfect for business travellers.

Location: Manchester
Type: Luxury Serviced Apartments
Prices: £220,000 – £500,000
Rental Yield: 7% NET Contractually Guaranteed Yield
Capital Growth: Forecasted 15% during the construction period (completion in 2020)

Apart-Hotel: Portugal

Located in the finest locations across Portugal, there is a fine selection of excellent family beach resorts and 5 star city apartments in the heart of the traditional areas, offering tourists and business travellers world class facilities.

Location: Cascais, Lisbon, Algarve, Porto
Type: Luxury hotel apartments & Family resorts
Prices: From €500,000
Rental Yield: 4% NET Yield
Capital Growth: Property in these areas have seen 7% +growth Per annum since building.