Saxbury’s Adam Lowenthal reveals his serviced sector predictions

Co-founder and investment director Adam Lowenthal sheds light on the sector’s performance in 2023 and reveals his predictions for 2024.

Following a year of contrasts, paradoxes and interest rate rises, 2024 is set to be a year of action. Here, Saxbury’s investment director Adam Lowenthal lifts the lid on his industry predictions, from the funding floodgates opening and European expansion to fundamental shifts in behaviour and the rise of AI.

Reflections on 2023

“The demand from operators was unbelievable,” Adam says of 2023. Despite high rents, occupancy continued to rise because the rates consumers were willing to pay were so high. “There was this pent-up, post-pandemic desire to travel, whether business or leisure. Our sector benefited massively because people are now used to using serviced apartments.”

This was compounded by sharply contracting supply due to many Home Office contracts being signed, taking whole hotels and apartment complexes out of circulation. Furthermore, predicted supply never hit the market, as it couldn’t be built or funded.

However, while rates were high, wage, rent and utility cost escalations effectively neutralised many of these gains. With yields softening, funds and investors patiently bided their time. “The institutional money just wasn’t there.”

Growing investor appetite

The living sector was one of many affected by a funding gap in 2023. However, the coming months show a lot of promise. “I'm an optimist, but we need to be realistic as well,” Adam muses. “This year, we are going to see some interest rate cuts that should help all businesses globally, and hopefully individuals too.”

As a growth sector, the serviced apartment industry is set to re-attract interest from investors. “I feel that sites will start being built,” states Adam, who believes we may also see paused projects return.

But one major roadblock remains. “My reservation is around how long things take to happen,” he says of Britain’s broken planning system. “Because it’s not a function of the private sector, it could really hold us back.” While forward progress is forecasted, it’s doubtful that many of these new assets will be operational this year or even next.

Accelerated European expansion

It’s expected that London will remain as the dominant market. However, it is also the gateway to Europe and the rise of the branded aparthotel has shown the potential for domestic successes to be repeated abroad. With exciting opportunities from Manchester to Turkey, Adam predicts that a wave of expansion will sweep over Europe as operators enter new cities and territories with fresh products.

European expansion of the serviced sector is already underway and by the close of 2024, it’s thought that there will have been a 21% increase in stock levels over the preceding three years. Needless to say, this still won’t fulfil the seemingly insatiable demand from operators. “It's going to be a year of change and positive moves,” he affirms.

Global brands are also expected to create sub-brands to expand their groups into continental Europe. In fact, we may eventually see more homogeny behind the scenes. “The lines are blurred between serviced apartments, PBSA, BTR, co-living and retirement. People need somewhere to stay wherever they are in their lives. It’s heads on beds, with services. So these may all become operated by one global brand, with sub-brands in each sector.”

“Competition is good for a marketplace. The more competition, the better you become”

- Adam Lowenthal, Co-Founder and Investment Director at Saxbury

Supply and demand

Adam remains cautious as this exponential growth is not sustainable. Furthermore, due to the cost-of-living crisis, consumers are increasingly using credit cards or digging into their savings. “At some point, they’re going to stop spending – especially on luxuries such as travel.” The hotel industry in particular is expected to take a considerable hit. So with frugal times ahead, the serviced sector largely remains focussed on business travel.

“As operators get stock, there’ll be more competition which will likely drive rates down a bit too,” Adam explains. “Competition is good for a marketplace,” he asserts. “The more competition, the better you become.”

Longer stays and remote working

Serviced apartments and aparthotels have shown themselves to be adaptable. With average stay lengths increasing across the board, the sector is well-equipped to cater for the changing needs of business travellers. “Of the week that you’re on a business trip, you may still remote work from the apartment,” Adam suggests. “Serviced apartments are resilient and appealing, whereas living in a hotel room is miserable.”

Furthermore, the classic question of “business or leisure?” may become redundant – as more operators are seeing business travellers extending their stays to incorporate leisure time.

The rising importance of ESG

A sharpened focus on ESG will be the foremost consideration for many businesses in the industry. With brands like Room2 and Beyond Apartments leading the way in this respect, others must follow suit. “It’s got to be in the DNA of every part of your business,” Adam says. “And for us to preach it, it’s got to be in ours.”

The ESG model takes into account a plethora of concerns under environmental, social and governance umbrellas – with sustainability being one of several criteria. “It’s blatantly obvious that it’s top of the agenda for investors,” Adam asserts. “Quite frankly, if you don’t tick these boxes today, they’re not going to look at you.”

Technology, automation and AI

As “AI” becomes the current buzzword in every territory and industry, the serviced sector also stands to benefit. A powerful tool to support analysis and decision-making, AI can automate simpler tasks and play a significant role in more complicated ones. “We’re working on an AI platform at Saxbury, and it’s already becoming our Encyclopaedia Britannica.”

Following two years of uncertainty and market confusion, Adam is optimistic. “Out of chaos, will come opportunity and I believe that 2024 will be a year of activity and action across the living sector.”

We look forward to working with our fantastic clients to help them take their projects to fruition this year. Get in touch with Saxbury today for an exploratory chat about your project.