Serviced apartments have traditionally faced an uphill battle when compared to more traditional forms of lodging for business travel. In recent years, however, the strong global economy and increased corporate lodging demand has led to a surge of growth for the sector.
Still, new evidence sheds some light on the challenges faced by the sector, particularly as growth among corporations is tailing off in the midst of a global expansion by corporate housing providers.
The latest annual report from The Apartment Service, a UK-based corporate housing booking agency, found that demand for serviced apartments is still growing overall. The company polled 6,000 corporations, 2,000 serviced apartment operators, and 1,800 agents for the report.
Corporations expressed reduced demand growth in the last year, though, although more than half already use serviced apartments for relocations and business trips.
The sector may have reached a “temporary ceiling” as companies are simply using as many serviced apartments as they really need to. The research found a 15 percent drop for serviced apartments in the request for proposal process, signaling that corporates may be satisfied with their lodging mix as it stands today.
“Our survey shows that, year-on-year, corporate use of serviced apartments for business travel has fallen by 9 percent, assignment/project working by 18 percent, and relocation by 8 percent,” states the report. “We do not believe this is evidence of any decline in demand for serviced apartments. The factors that make serviced apartments a compelling alternative to hotels remain unchanged from our previous report, with brand recognition and policy compliance ranked alongside traveler/assignee preference in the top three criteria.”
Use by travel management companies and other travel agents, however, is increasing to the tune of 21.5 percent year-over-year growth for project work and 18 percent growth for relocation.
What are buyers looking for when they turn to corporate housing? Cost savings are most important by a wide margin, according to the data. A strong quality of product and appropriate service when there’s a problem follow.
Over the next year, more serviced apartments will be booked through agents, travel management companies, and self-booking tools. Fewer will be booked directly on an apartment’s website.
The report also delved into the problems faced by serviced apartment providers. Competition, the overall economy, and homesharing were the most pressing concerns for operators. Most providers reported strong upticks in occupancy, daily rate, and average length of stay despite the lack of demand from corporates.
The biggest challenge comes from Airbnb and other platforms that can offer a cheaper and more convenient alternative to the traditional serviced apartment.
“The accessibility of homeshare or private rentals as alternatives to both serviced apartments and hotels continues to disrupt,” reads the report. “Just over 30 percent of corporates now allow their travelers/assignees to use a short-term rental provider, of which 23.63 percent do so direct whilst 10.53 percent source via their mandated agent. However short-term rental providers are a way off from gaining significant traction amongst corporates. 42.11 percent of those we surveyed claim they do not permit their travelers or assignees to use them, with 28.95 percent yet put any formal policies in place around their usage.”
The supply of serviced apartments is still growing in every global region, with the Americas and Europe leading the way on new properties. More than 1 million properties are already available worldwide, representing 23.7 percent growth from two years ago.
This may pose problems to the sector as these units come online, pushing down prices due to increased competition. New entrants stand to face a harsher competitive landscape than entrenched players.
“Rising supply of new, purpose-built properties will provide extra pressure on rates due to the high cost of real estate and construction despite new apartment stock tending to be smaller,” states the report. “Traditional corporate housing accommodation providers (who made up 39 percent of our survey respondents) and homestays (22 percent of respondents) will have a real advantage in both respects.”
While a potential challenge for the serviced apartment sector at large, this would likely be a boon for corporates because reduced pricing would make choosing a serviced apartment a stronger choice for travel managers than a more costly hotel or Airbnb booking. Serviced apartments could gain even more traction in the ecosystem after muddling through its current period of expansion.
You can request a copy of the report here.