Hotels to aparthotels: How will this adaptive reuse trend play out?
Beyond Apartments, Fitzrovia
Saxbury’s Ben Davis explores the latest adaptative reuse trend that’s gaining traction and why growth opportunities can be found in conversions.
Adaptive reuse is nothing new. Given today’s economic climate, revitalising real estate that no longer makes financial sense is as strategic a move as ever. While office-to-aparthotel projects continue to grow in popularity, the landscape is also shifting towards hotel-to-aparthotel conversions.
In the UK, appetite for aparthotels is at an all-time high. The pandemic undoubtedly provided the catalyst – both for consumers looking for apartment-style living with the comfort and security of a hotel and for investors and operators who began to recognise the sector’s long-term potential.
The rise and rise of serviced apartments
Today, the outlook is one of continued growth and optimism. In a ranking of 26 real estate sectors, serviced apartments climbed from 16th place in 2022 to ninth place in 2024, as highlighted in the Emerging Trends in Real Estate: Europe 2024 report by PwC and ULI. Other sources point to the fact that the profitability of the aparthotel sector outperforms the regional UK hotel market.
Accordingly, investment is on the up, with key European operators looking to expand into the UK market. Among them is the digitalised hospitality platform NUMA, which recently acquired lifestyle aparthotel brand Native Places, adding more than 800 new units to its 7,300-unit-strong-and-counting property portfolio.
“Investors and lenders have shown increased interest in the serviced apartment sector due to its higher profitability, strong trading performance and resistance to inflation,” noted Clemence Sennavoine, senior associate at HVS’s London office in a recent research paper.
Certainly, a HVS analysis of around 9,000 serviced apartments across Europe revealed that occupancy increased by two per cent between 2022 and 2023, while the average rate rose by 13 per cent. This resulted in a 15 per cent growth in revenue per available room.
You’re a hotel owner, should you consider converting to an aparthotel?
Buoyed by investor confidence and demand from consumers, aparthotels present an attractive proposition for hotel owners who are considering their options. For many, the past few years have been the perfect storm. On the one hand, the combined pressures of widened commercial yields and higher borrowing costs mean it’s not a particularly favourable time to sell. On the other, rising operating costs present operational challenges, particularly for businesses that may have already had to pivot during the pandemic, perhaps to a single use contract.
Against this backdrop, aparthotels offer a sustainable alternative and, crucially, guaranteed incomes. At Saxbury, we facilitate mutually beneficial relationships between hotel owners and aparthotel operating companies by structuring long-term block lease agreements. For owners, this means index-linked revenue, together with the assurance that their property is being managed by a reliable custodian.
Step-by-step development advisory
With limited appetite for ground-up development due to high construction costs, growth opportunities within the aparthotel sector lie in conversions. Many existing hotels are primed for redevelopment, particularly those with above average room sizes. Location and transport links are other important considerations.
For anyone weighing up a conversion, we can work closely with you to ascertain suitability for any refurbishment before we present it to operators for proposals. We have a track record of supporting owners as they transform buildings into defensive assets. Once refurbished and leased as an aparthotel, these properties become income bonds providing risk adjusted returns to a huge variety of passive income investors.
Defensive asset classes for the future
For investors, now is an opportune moment to acquire commercial assets and reposition them to more defensive asset classes for the future, like aparthotels. At Saxbury, we have extensive experience of working with developers and investors to provide everything from initial feasibility analysis to identifying the right operating solution for a building. After almost two decades in the industry, we have a nuanced understanding of every aspect of the process and can provide the innovative ideas and insights that all parties need to unlock unique opportunities.