The rise of serviced apartments

In the pandemic’s wake, travellers are showing a preference for affordable, well-located, self-contained accommodation which allows for complete independence and flexibility – something that a traditional hotel offering cannot always deliver.

Consequently, the serviced apartment market in New Zealand is primed for growth according to Bayleys national director hotels, tourism & leisure (HTL) Wayne Keene.

“There’s been a big uptick in occupancy levels for the serviced apartment segment of the commercial accommodation sector, with people booking well-priced options that allow for a home-away-from-home experience,” says Keene.

“There’s a real benefit in having technology-enabled accommodation complete with dedicated kitchen and laundry facilities as travellers and guests are shying away from communal amenities and facilities given health and safety concerns post-pandemic.

“This offering also appeals to the extended-stay corporate market, which is active again as face-to-face dealings become more widespread and the business sector recalibrates.”

Many of the main players in the serviced apartment sector, both here and offshore, are on a proactive acquisition trail in New Zealand and Keene says Bayleys’ HTL team talks regularly to operational representatives seeking management rights for conveniently located short-term accommodation properties to strengthen their portfolios.

“Operators look to us for market intel which is particularly relevant for those based outside of New Zealand, wanting to get a gauge on trends and activity.

“We have a very clear idea of what they are looking for, what type of property would suit the management structures that different brands champion and have eyes and ears across all regions of New Zealand.”

Keene says it’s a volume game for operators, who need to make the managed serviced apartment model work efficiently and cost-effectively.

“In the main metropolitan centres, and given economies of scale, around 100 apartments is the sweet spot to make it a viable proposition for an operator to consider.

“However, there are always exceptions and in smaller centres around New Zealand, more modest apartment developments of fewer than 30 units could be considered by some brands.”

Bayleys’ HTL team tends to broker the operational business or management rights of existing apartment complexes, although occasionally, new-build developments are sold outright.

Keene says the Gold Coast market provides a good example of the management model widely used for serviced apartments and he says this sets a sound benchmark for operators in this country.

“Yes, it’s a much smaller market in New Zealand, but it’s a sector that has potential to grow on the back of changing accommodation preferences of independent travellers.

“There is also scope for new developments to take off in centres that have evolving central business districts, limited serviced apartment stock, and appeal for short-term visitor stays – like Tauranga and Hawke’s Bay.”

There’s also evidence of changing property use to meet the demand for serviced apartment stock, with the conversion of a former strata-titled luxury residential apartment complex into the 4.5-star Nesuto Stadium Hotel and Apartments in Auckland’s CBD one example.

“Now, this largely serviced apartment facility, with some hotel rooms, and added dining and conferencing amenities to boost the offering, is filling a gap in the market, but there are also other ways to ringfence existing apartments for the commercial accommodation pool.

“In some instances, serviced apartment operators can acquire the management rights for a bulk number of apartments within established buildings, enabling them to offer these to the short-term occupation market alongside privately owned and occupied residences.”

To demonstrate, Keene points to the Avani Auckland Metropolis Residences, professionally managed by international hotel owner, operator and investor Minor Hotels, which operates an apartment business in the flagship Metropolis tower in central Auckland via a licence agreement with the body corporate.

“Under a section of the Unit Titles Act 2010, the Avani brand occupies parts of the common property of the ground floor lobby and basement of the building for among other things, the provision of reception and concierge services to support the 111 apartments it controls.”

Keene says investors are attracted to serviced apartment assets because of the cost-effective operational models and higher margins.

“Serviced apartment offerings by nature require fewer staff and this proved invaluable at the height of the pandemic when the labour market was squeezed.

“Further efficiencies are likely to roll out, too, and as the international travel market resumes post-COVID, we expect to see more efficient and streamlined guest processing operations with technology enabling touchscreen check-in/check-out kiosks, code-activated entry points and online concierge services.”

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