Amid a backdrop of global recession and the collapse of worldwide property markets, the global serviced apartment sector is bucking the trend. According to the Global Serviced Apartments Industry Report 2011-12, published by London-based organisation The Apartment Service, the industry grew from an estimated 446,996 extended stay or apartment hotel units in 7119 locations in 2010 to an estimated 599,187 units in 8362 locations. This represented an increase of 34% in inventory and 17.5% in coverage.

A look back over previous years shows that in 2009 up to 70% of apartment operators reported increased occupancy levels; in 2010, this fell to 59%, with 22% reporting no change, while the most recent report showed that operators have seen occupancy rise over the last 12 to 18 months to almost record levels, with average lengths of stay also increasing. This burgeoning sector clearly has its strengths, however no sector is without its accompanying weaknesses, opportunities and threats.

Strengths

The appeal of the serviced apartment itself is not hard to see. Punthill’s director of sales and marketing, Keiran Spencer, said serviced apartments were becoming better known for their adaptability to individual traveller preferences.

“While hotels offer travellers many benefits through service offerings, the downside for long-term guests is recognised by restricted living conditions and size limitations,” he said. “Travellers who choose serviced apartments enjoy the services of a hotel coupled with all the comforts of home, with fully equipped kitchens, prime locations, extra living space and home-like decor being some of the benefits.”

As for the Australian landscape, it has evolved significantly over the past decade in terms of corporate demand and market share, according to Paul Constantinou, chairman of Quest Serviced Apartments. “Serviced apartments now make up more than 25% of Australia’s domestic accommodation market, up from 10% in 1999. The industry also generates over $2 billion of annual revenue,” he said.

Weaknesses

The Global Serviced Apartments Industry Report 2011-12 found that the shortcomings of travel industry distribution, where serviced apartments are concerned, had not eased. “Attempts to create a GDS (global distribution system) for serviced apartments have foundered on the fundamental issue of recognising an apartment,” said Charles McCrow, managing director of The Apartment Service. “The lack of brand recognition and inconsistencies between extended stay products doesn’t help matters, and without a classification scheme for apartments, the task facing travel management companies and leisure travel agents becomes virtually impossible.”

The internet is the distribution mechanism of choice for apartment operators because they didn’t want to be in the GDS unless they had sufficient inventory to juggle with, McCrow said. “To work efficiently, the GDS model requires accommodation to be commoditised. However, this requires serviced apartments to be readily available, in numbers, in all major locations. Other than in the US – and increasingly the Far East – the sector is not yet that mature.”

Opportunities

According to Paul Constantinou, chairman of Quest Serviced Apartments, there is still a large gap between supply and demand in the market, presenting a massive opportunity for the serviced apartment industry. Over the past decade the operator had observed a significant change in its corporate clients’ travel patterns and requirements, he said. “Mining and agricultural activity, plus the emergence of new residential growth corridors, have resulted in a shift in where corporates demand our product – from capital cities to suburban and regional locations. So long as corporate demand for our product exists in these regional locations, this is where our business growth will be focused,” he said.

Ascott’s country general manager, Dean Minett, said the strong Australian dollar and the strength of the resources sector were great opportunities. “It’s no secret that markets such as Perth are experiencing high demand due to the resources boom and limited room inventory in the market,” he said, adding that properties such as Somerset St Georges Terrace Perth were performing particularly well.

Threats

Global economic conditions remain a primary challenge for the serviced apartment sector. “Though the Australian economy is strong, there are worrying influences from overseas to watch out for as some global markets teeter on the verge of collapsing,” Ascott’s country general manager Dean Minett said. Keiran Spencer, Punthill’s director of sales and marketing, added that tighter lending policies by the banks were threatening strata-managed developments. “Banks are growing more reluctant to lend against new developments and a decline in apartment sales presents a significant threat to industry growth,” he said.

Meanwhile, Paul Constantinou, chairman of Quest Serviced Apartments, said the industry would see the pressure on supply continue, particularly in regional towns experiencing ongoing major projects and new developments – and the challenge would be to keep up. “The tightening of finance amid global economic uncertainty will undoubtedly impact the industry’s ability to grow.”