International real estate advisor Savills has identified Dublin, Stockholm, Amsterdam, Berlin and Barcelona as the top five ‘opportunity’ markets for expansion of the serviced apartment (also known as the ‘Extended Stay’) sector across Europe.
According to Savills, €416.5m was invested into Europe’s Extended Stay sector in 2015, a year-on-year increase of 32.9%. The majority share (90%) was invested into the UK, with Germany (7%), Switzerland (2%) and Belgium (1%) at the forefront of activity within what is a relatively immature asset class on the continent.
In order to identify the new opportunity markets for this sector, the Savills research team analysed the following factors within a matrix of 35 European cities:
The presence of large corporates
GDP and employment growth forecasts
Overnight visitor market and supply drivers (current stock relative to overnight visitor including that of hotels) for the sector.
Dublin, Stockholm, Amsterdam, Berlin and Barcelona were all ranked highly due to them having sizeable corporate and overseas visitor markets with strong outlook in terms of GDP and employment growth. But more importantly they also had very constrained stock levels relative to their overnight visitor market.
“Those markets where the demand/supply fundamentals are the most robust present the greatest opportunity,” comments Marie Hickey, commercial research director at Savills.
“These five key gateway markets in Europe continue to offer expansion opportunities as they have some of the strongest underlying performance fundamentals which will in turn help to drive demand for ‘extended stay’ accommodation.”
For example, Dublin and Stockholm had some of the most constrained levels of supply with 0.08 and 0.1 Extended Stay units per 1,000 overseas visitors. Dublin has already been identified by operators, developers and investors as an opportunity market with three schemes, with a total of 273 units, expected to complete in the city by the end of 2018. London, which featured in the top 10 ‘opportunity’ markets in Savills research, remains both a highly liquid investment environment and in pipeline terms the largest target market for expansion with almost 1,400 units in the development pipeline and could see stock levels increase by 13.3% over the next 3 years.
“We anticipate that evolving consumer trends of millennial business travellers, and the success of AirBnB in highlighting alternative accommodation options, such as Extended Stay, across Europe will help the sector further tap into existing unmet demand,” comments Marie Hickey.
Richard Dawes, associate director in the Hotels team at Savills, adds, “The growing awareness around the sector, the brands and the stable operational model is capturing greater levels of third party investment and developer appetite, thus we expect these core European cities to welcome strong levels of investment in the Extended Stay sector over the next few years albeit the lack of investable stock remains a constraint.”