Global Demand and Supply Chain
High levels of pent-up demand due to the easing of COVID-19 restrictions
In early 2022 the majority of COVID-19 travel restrictions were lifted globally, resulting in a surge of pent-up demand for corporate travel. This was felt more significantly in regions where prolonged restrictions had prevented travel for extensive periods (Australia, for example, opened its international borders for the first time in nearly two years in February 2022).
As per findings from Savills, the subsequent rush on serviced apartment bookings can be attributed to their traveller appeal. With serviced apartments providing a more attractive environment for long-stay guests needing to socially distance, and the ability to better facilitate homeworking, they were preferred in many instances over hotels throughout the pandemic. When business travel returned in late 2022, a larger client-base including new audiences drawn to serviced apartments during 2021 quickly drove up demand.
Operators race to recapture released stock
When business travel came to a standstill in 2020, some serviced accommodation operators were forced to release stock. This resulted in a swathe of landlords abruptly losing a reliable source of rental income, impacting their level of confidence in the serviced apartment sector. In late 2021, when business travel resumed, operators were eager to recapture released stock to meet the new demand. Reluctant to change tack in case of further lockdowns, landlords were hesitant to lease units to serviced accommodation operators until the travel climate rectified itself. With business travel booming once again, we are starting to see stock being leased to serviced accommodation operators more readily - helping to alleviate the supply shortage. Read more about the industry-wide supply shortage in our December 2021 State of the Market Review.
Sector investment is healthy, resulting in a positive impact on long term supply
The renewed interest in serviced apartments has led to a significant shift in investor behaviour within the industry. For investors – the shrinking yield gap between serviced apartments and hotels has driven more appetite for investment into temporary living.
Savills has reported that the increase in leased investment opportunities across the European serviced apartment sector is helping to support demand from institutional buyers. Since 2018, institutional buyers have accounted for a 56.1% share of European serviced apartment transactions, exceeding the 50.9% share recorded for hotels. This is a sizeable increase on historical share; for example, between 2013 and 2017, institutional capital accounted for just 39.1% of volumes.
While this investment promises further development of serviced properties in the next two to three years, alleviation of current demand pressures is not likely to be felt until late 2022.
Notable transactions in 2021 include Abrdn (formerly Aberdeen Standard Investment) acquiring Room2 Southampton for £10 million reflecting a yield of 4.98%. This was a sale-and-leaseback with the operator signing a 30-year index-linked lease. Similarly, German buyer, Union Investment, completed on the new Wilde by Staycity Aldgate site for £51 million, also with a 30-year lease in place, reflecting a 4.74% yield.
Contraction of lead times for bookings and extensions increases pressure on availability
Lead times have contracted significantly since the onset of the COVID-19 pandemic. From Q1 2019 to Q2 2019 the average lead time per booking was 44 days. For the same period in 2022, average lead times fell 47% to 23 days.
We recommend that clients enquire as early possible. Longer lead times allow our agents to provide a higher quality and greater range of suitable options. While we recognise this is not always possible, giving us as much notice as possible will allow us to secure the greatest range of options for you.
Shipping container crisis drives extension requests
The shipping container crisis has impacted the arrival times of relocating assignees’ possessions and furniture. Consequently, companies are extending assignee apartment bookings by 30 days. This acts as a less expensive alternative to hiring temporary furniture packages to fill permanent residences while awaiting shipment deliveries.
A new pattern of block booking for guests with no name
Due to high demand, many companies are confirming block bookings in advance, regardless of whether they will be required, to secure availability in the event it might be needed. Additionally, many operators are taking properties off the market to make space for refugees from the conflict in Ukraine, further constricting availability.
EMEA Region Focus
What is the impact of the conflict in Ukraine on Temporary Living?
The economic and logistical ramifications of the Ukraine conflict are in large part a result of the high number of refugees fleeing Ukraine and Russia, inflated oil and gas prices resulting from Russian sanctions, and the knock-on effect of financial suspensions placed on Russia. As such, demand for serviced accommodation has increased throughout Europe and beyond, while availability and supply have decreased significantly.
Refugees on the move are a new market segment
According to UN statistics, over 7 million Ukrainians have fled the country, with the majority having sought refuge in neighbouring countries, as follows:
- Poland has taken in over 3M refugees
- Romania over 800K
- Moldova over 400K
- Hungary over 500K
- Slovakia over 400K
- Belarus over 25K
As such, availability in the major cities within countries neighbouring Ukraine and Russia is extremely limited, if not completely unavailable.
Key city analysis:
London
Demand – MODERATE to HIGH. Business districts where supply was particularly stretched during the pandemic, such as City and Canary Wharf, are continuing to experience issues with supply. These constrictions are causing overall rates in London to increase.
Supply – HIGH: Q1 2022 saw 101 properties added to agent portfolios, a total of 643 apartments overall.
Conclusion: A mature and healthy market like London will always have something to offer. Initiating a request early will assist in ensuring the location, amenities and rate are in line with expectations.
Dublin
Demand – VERY HIGH. Exceptionally large amount of pent-up relocation to Dublin, especially from global technology companies making it a highly competitive market with rates at all-time highs.
Supply – LOW: Q1 2022 saw 5 properties added to agent portfolios, a total of 469 apartments overall.
Conclusion: Large apart-hotel style properties dominated the start of the year, but despite these additions to supply, demand is yet to be satiated. Residential and family appropriate stock remains low.
Berlin
Demand – HIGH. Berlin has been more heavily impacted by the conflict in Ukraine than any other Amazon top location. Companies moving out of Russia are selecting German cities, including Munich, Frankfurt and Berlin as their base for relocated assignees. It is also currently fair season in Germany which is driving further demand. Two-bedroom options are heavily restricted for the foreseeable future.
Supply – LOW: There were no additions to supply in Q1 2022.
Conclusion: One of the most extreme gaps between demand and supply. Long lead times required.
APAC Region focus
Across APAC, demand remains high in key locations. Our Vice President – APAC, Sophie Brinsley, summarises the current APAC market:
“Singapore and Japan remain the most sought-after APAC locations and require a long enquiry lead time. We recommend submitting enquiries approximately two months or more in advance for the best chance of receiving multiple options. Some properties in these locations are fully booked in all apartment types until August. Larger units, and two- and three-bedroom apartments are especially difficult to source. This is exacerbated during popular events, such as the upcoming Singapore and Japanese Grands Prixs.
“Whilst we will always do our utmost to hold the most suitable options for client requests, we recommend enquiring as soon as possible, requesting secondary and tertiary preferences in case the guests' first choice is not available, and keeping flights flexible in case the most suitable option will delay travel.
“Australian cities are also experiencing high levels of demand and popularity surges during event dates. To keep up with demand, many Australian partners are seeking to increase their stock which they had reduced during the pandemic, as typically buildings are distributed across multiple operators.
“The majority of APAC properties are increasing their rates in line with a general surge in living and hiring costs. We prioritise partners that keep these rate increases fair and continue to offer the best value options in the market. We are actively dissuading clients from booking any ‘fair-weather’ properties that are overtly attempting to capitalise on increased demand.
“The good news is that a huge increase of new properties coming from many global partners is in the pipeline for APAC – we just need to be patient for these units to enter the supply chain in the coming months to stabilise the market.”
Americas Region Focus
Our Senior Key Account Manager – Americas, Robert Carrick, summarises the resurgence of corporate housing stays in the Americas:
“We have noticed a large increase in business across the board in the US in the last two months. Relocations that were delayed during the pandemic are going ahead, demonstrating a willingness to commit to business trips amongst organisations.
“Accordingly, US corporate housing rates are increasing quickly in line with the demand, especially in areas such as New York and Silicon Valley in California. In order to keep up with demand, many of our partners are starting to take additional property leases to boost their unit numbers. We have also seen a huge increase in requests for Canada, especially in Toronto, following an extremely quiet two years in terms of business travel to the region.”
Stay up to date with the serviced accommodation market
The serviced accommodation sector is constantly shifting and adapting to demand, and our teams are able to provide up-to-the-minute expert analysis on all regional markets. Our insights are based on extensive data collection and comprehensive market research. Want to learn more about how the serviced accommodation market impacts business travel and receive guidance pertaining to your travel programmes? Contact one our global teams today for informed, expert, and impartial advice.
