The serviced apartment & real estate round-up of 2018

2018 overall has been another rollercoaster year. Having finished 2017 at its highest ever price, Bitcoin had wiped off almost 80% of its value in the last 12 months. The country did what it does best and rallied behind another exemplary Royal wedding. Our industries are one step closer to being interstellar, because having an international portfolio is soon to be “so 2018”, with the SpaceX maiden flight.

Oh, and who can forget the dreaded word on everyone’s lips – Brexit. Not purporting to be experts we will leave that particular story there for the time being. We hope Guinness don’t have to change their advertising slogan. 2019, although still uncertain will, without doubt, provide the property sector with many hurdles but also opportunities.

That being said, here’s our round up of 2018:

Retail

It is no secret that the retail sector and UK high street is suffering. Brands such as New Look, Toys R Us, House of Fraser, Mothercare and M&S all announced iterations of downsizing or closures in the guise of CVAs, administration or store closures. This has in turn lead to portfolios of leased assets being handed back to owners. This news however, although upsetting for retailers in general, has presented Saxbury with a number of opportunities. We were signed on by an asset manager to advise on potential solutions involving changes of use to apart-hotel and serviced apartments of one of the most iconic buildings in Cardiff, the former Howells and House of Fraser building.

We predict that the owners of smaller retail malls in prime locations will be in touch with us in the coming months to discuss the future proofing of their sites and portfolios. By considering a change of use of a small part of their sites and with the appeal of serviced apartments beginning to shine through, this will be the most likely route for 2019.

Residential

Existing/already built stock for sale

A dip in the market and fewer applicants for built residential stock is forcing developers who are keen to achieve their GDV to revaluate their approach by holding properties for rental income. These unlikely landlords are turning to Saxbury for solutions such as block lease agreements with reputable operators, allowing developers to rest easy for 3 to 5 years or until the sales market becomes more resilient.

Residential stock currently being built for sale

Much like the retail sector, we have seen an increase in interest from developers looking to de-risk their residential stock with pre-let agreements from serviced apartment operators.

PRS Built to rent operators

We have observed that there is ample PRS stock still available in business cities where serviced apartment demand is also strong. We are often approached by PRS and large-scale residential developers who are eager to offset some of their vast stock with long term serviced apartment leases - this is generally whole floors within dedicated rental blocks. Numbers permitting, this can be an ideal scenario for a serviced apartment operator as well as providing the PRS an anchor within their building. It also guarantees stable income and reduced exposure to dreaded voids.

Developers with proposed residential sites

Saxbury has spent countless hours consulting with, and educating, residential developers on the benefits of the sector. We have produced detailed market & feasibility reports for boards helping them gain a better understanding of the market dynamics, GDV and likely returns of serviced apartments. Real estate developers are increasingly looking for hybrid or alternative accommodations to diversify their portfolios, as a result we have seen a significant increase in conversations with developers looking for advice on how they avoid current market pitfalls while also realising planning gains through the application of C1 (apart-hotel), rather than C3 (residential), planning for their sites.

As specialists in this sector and with 50 years’ experience between us, we have a particular ability to deliver parties who will forward fund and commit to buying C1. It is one of the areas we continue to develop and grow and it will be one that is integral for us and our clients in 2019. We have tried to make the process as streamlined and efficient as possible. In its simplest form, we consult with the client, take the opportunity to market, secure an agreement for lease and potential exit pre-planning.

Serviced apartments

Airbnb and other home sharing platforms have gained even more exposure in the media. This is reassuring news for informal holiday lettings business and serviced apartment operators. The exposure reiterates with investors, and in turn long-established corporate serviced apartment operators and big brands, the fact that this is an investable asset class.

Throughout 2018 Saxbury has been brought on and retained by developers helping them to understand this sector and to breathe life into their planned apart-hotel projects. As we begin 2019, we expect some of these projects to have evolved to be ready for us to present them to the market for lease and disposal on the investment markets.

Off the back of our successful sale of a London serviced apartment operator to an American corporate housing firm, we are being approached by more operators who are considering their next move, whether that be to grow or to sell their businesses. Unusually, we are also being approached by investors who are looking at entering this space by purchasing owner operated portfolios.

Although Saxbury has been involved with serviced apartments for many years, we are still being contacted by institutions who know very little about the sector, reiterating the point that this is still a specialised asset class.

We have a lot to do and long way to go before serviced apartments become more mainstream and reach global levels of adoption, but we will continue to strive to be the pioneers in this space. The income on this asset class is still strong and there are still many opportunities as first movers into this space.  

We’d love to hear your thoughts on this subject, let us know your perception of the market by commenting below.