Everything you need to know about investing in Serviced Accommodation
If you've ever wondered what serviced accommodation is and why informed property investors and developers are profiting from it, then this article will help explain more about serviced accommodation and the opportunities that investing in this property type will bring.
Essentially, as an investor the serviced accommodation - which tends to be apartments - will be available for long-term and short-term stays with the provision of extra amenities, certainly more so than is found in a traditional rented home.
This will mean the accommodation will deliver better-than-average returns but there are issues to consider carefully including this type of accommodation only working in specific locations.
Also, as the investor, there's more effort needed to deliver success than for a standard buy to let investment which helps explain why the returns are much higher.
And since serviced accommodation tends to have more space than is found in a hotel room, it's usually around a third larger, these properties are popular with those wanting a quality property for a short term stay.
What your serviced property will need to provide
This means your serviced property will need to provide:
- Oven and other white goods including a microwave, fridge freezer and a kettle
- A large screen HD TV and a DVD player
- All towels and linen
- A washer/dryer and dishwasher
- Broadband with Wi-Fi
- A fully fitted kitchen plus all cooking utensils
- A weekly cleaning service including the change of towels and a linen.
As the investor, the type of client looking for this type of accommodation will be very different to someone looking to rent a BTL property over the short-term and you will incur other expenses, particularly when the tenant moves out.
Location of your serviced accommodation
One of the big differences between serviced accommodation and a buy to let investment is its location; you'll need the property to be in a central place either in the city centre or close to the centre.
Although you could opt to invest in a property with easy transport links to the centre of London, for example.
It also needs to be appreciated that serviced accommodation is not only growing in popularity but it's also a relatively new opportunity for those who are looking for investment properties.
One reason for this, says The Apartment Service which is a booking agency providing clients, is that serviced apartments can be up to 30% cheaper than staying in a hotel which makes them an attractive proposition to businesses wanting somewhere nice for employees to live and also tourists.
Some investors may know them as a 'corporate let' and they tend to be fully furnished apartments though big clients, particularly in central London, may also be looking for a fully furnished house for their employees.
Also, the length of time that a client may be staying will vary, for example, a short-term let might just be for weekends or a few weeks while longer term arrangements will cover several months.
Why would clients opt to use serviced accommodation
So, why would clients opt to use serviced accommodation rather than a hotel room?
Leaving aside they are much larger, a serviced property tends to offer more flexibility and privacy for the client.
In recent years, this type of temporary accommodation has risen strongly in Europe with the average occupancy rate in the UK for a serviced apartment being 81%. For a hotel room, the occupancy rate is, on average, 77%.
Over the last eight years, says The Apartment Service, there's been an increase of 80% in the number of serviced apartments around the world to reach 750,000.
Also, real estate firm Savills says serviced accommodation is the fastest-growing part of the UK’s hospitality sector with numbers set to double over the next year or so. This means there are investment opportunities to be exploited and demand from clients is not only strong but set to get stronger.
As mentioned earlier, the people using serviced accommodation can range from tourists, and the UK's tourism numbers are increasing, but also workers completing projects around the UK who don't want to live in a hotel – they can also share a property with several bedrooms with friends and/or colleagues.
What to consider when investing in serviced accommodation
What you need to consider when investing in serviced accommodation:
- Prime central locations
- High quality facilities
- Easy access to transport links
- Lots of amenities and attractions nearby.
Investors in serviced properties also need to appreciate that they will need to remain on top of maintenance so if anything needs repairing or fixing, then it needs to be done immediately. However, you will also avoid having tenants that do not pay rent or look after the property as you would hope.
Your clients will also not leave the property in a poor state needing a refurbishment or decoration after leaving because someone is going in on a weekly basis to clean and report damage and other issues for resolving.
Research has also revealed that the stays in serviced accommodation tend to be longer than for a hotel room with 91% of stays being for at least 14 nights. One reason for this is that the property will be delivering a home-from-home environment so those living there can come and go as they please while enjoying a degree of service that makes their stay a pleasant one.
It's this high average duration of stay and lower running costs which will mean that investors of serviced properties will achieve a higher net operating income than a traditional hotel will.
Finally, it's important to appreciate that as an investor you will be utilising the same asset that could be used for a buy to let but by opting to exploit a different market and tenant profile means your returns and profits will be much bigger with serviced accommodation.