Is Serviced Accommodation Worth It?

Nikka Sulton

Is Serviced Accommodation Worth It?

Property investment extends beyond conventional buy-to-let approaches. The emerging strategy of investing in serviced accommodation is garnering attention for its potential for impressive rental yields. This alternative path could be particularly enticing for investors, especially if the property is located in a sought-after area suitable for serviced accommodation.

If you find yourself in possession of such a property or are on the brink of acquiring one, exploring the potential of this fresh market approach might align with your investment goals.

What is Serviced Accommodation?

Serviced accommodation refers to fully-equipped, self-contained properties available for both brief and extended stays, often offering amenities akin to hotels, such as regular housekeeping and use of on-site facilities like pools, gyms, or spas.

Typically located within residential complexes, serviced apartments might not always have on-site personnel. In such cases, providers usually coordinate guest arrivals, supply safety deposit boxes, or even provide keyless entry systems.

It’s crucial to distinguish between serviced accommodation and ‘short term lets’. The latter might operate under varied legal frameworks like the Assured Shorthold Tenancy agreement, while serviced accommodations operate in a manner reminiscent of hotels.

Historically favoured by corporate travellers and those relocating for work, these accommodations often fall under the ‘apartment’ label on hotel booking platforms. However, in essence, they offer more than a mere apartment.

Increasingly, serviced apartments are recognised as a viable, cost-effective alternative to hotels, especially for extended stays, granting guests the convenience of home-like amenities and an opportunity to immerse in local living.

What should serviced accommodation include?

Serviced accommodation serves as a practical substitute for hotel rooms, offering a comprehensive living space with essential amenities covered in the rental fee. Landlords are required to furnish:

A fully equipped kitchen featuring essential cooking facilities, a dishwasher, and a washing machine.
A bathroom.
A furnished living area.
WiFi and a TV.
At least one separate bedroom or a designated sleeping area for studio apartments.
All utilities, encompassing water, electricity, and gas if applicable.
Housekeeping services, either on a weekly basis or at more frequent intervals.

Why is serviced accommodation getting so popular?

Contemplating an entry into the world of serviced property investments? Interested in renting out your property as a furnished flat? Delving into the fundamental allure of such accommodations can provide valuable insights.

Space

Serviced flats stand out for their generous space, providing a home-like comfort that hotels often struggle to match. Reports indicate that a furnished flat offers around 30% more space than its hotel counterpart. This extra room allows guests to work, relax, cook, and rest in an environment they can call their own during their stay.

Affordability

Many guests see serviced apartments as a more cost-effective option, with prices typically 20% lower than equivalent hotel rates. Moreover, guests are spared from unexpected charges like minibar expenses or room service fees. A significant advantage lies in the VAT reduction to just 4% after a 28-night stay, offering substantial savings for longer-term guests.

Flexibility

Serviced residences stand out for their flexibility, allowing guests to follow their own routines. Whether it’s preparing meals, conducting work, or hosting meetings or visitors, guests have the freedom to do so at their convenience. In spacious serviced flats, separate bedrooms and bathrooms ensure that groups or colleagues can maintain personal space and freedom. These accommodations are not only favored by business travelers but also by families who find them suitable for their needs. For families with young ones, the flexibility to adjust meal times or provide separate rooms for kids, much like their home setting, makes these flats a preferred choice.

Location

Serviced flats are strategically located in key city areas globally, near corporate zones, major attractions, and well-connected transport hubs. This prime positioning enhances their appeal among travelers.

Safety and Security

The appeal of a secluded space attracts many to serviced residences, offering a sense of home they might miss in a hotel. Minimal service interruptions mean guests can truly settle in. Furthermore, security is a standout feature in these accommodations. Modern serviced residences may boast features like secured access, surveillance systems, concierge services, and round-the-clock security.

Is investing in serviced apartments worthwhile?

Over the years, the serviced apartment sector has witnessed a surge, outstripping investment in hotel rooms.

A study by the global property firm, Savills, which centred on the European Serviced Apartment Market, showcased that, in occupancy terms, serviced lodgings weathered the pandemic better than their hotel counterparts.

While the pandemic did impact the demand for serviced apartments, predictions indicate that this sector will bounce back the fastest, expecting a 41% growth in serviced apartment RevPAR (revenue per available room) this year.

Considering their lower operational expenses and the trend of guests opting for longer stays, it reinforces the argument that serviced apartments present a promising investment opportunity.

Is serviced accommodation profitable?

Location is crucial for success. Choose a sought-after area, price your property reasonably, and attracting guests should be straightforward. Investing in a less popular location may lead to significant vacancy periods. Ensure your rental income covers mortgage payments, landlord obligations, and guest service expenses.

Generally, serviced apartments yield higher rates compared to standard buy-to-let properties leased under an AST. The return ranges between 6-9% for serviced apartments, while standard properties typically yield 3-5%.

What are the drawbacks to landlords of serviced accommodation?

While the potential income from serviced accommodation can be appealing, several considerations should be kept in mind:

The responsibility of arranging and covering the costs of essential services like housekeeping, WiFi, gas, and electricity lies with the landlord.
Marketing expenses may be higher compared to regular buy-to-let rentals, as attracting guests regularly is necessary.
Income may decrease during void periods, particularly in winter months.
The property must be furnished to a high standard that aligns with the rental charges for guests.
If self-managing the property, the landlord must be readily available to address guest inquiries and any arising issues. Alternatively, using a specialist letting agency incurs fees to be factored into yield calculations.
Arranging a meet and greet for new guests or setting up a coded security box for key retrieval is essential.

What are the benefits to landlords of serviced accommodation?

Increasingly, landlords and property owners are turning to serviced accommodation as a way to maximize rental property yields.

Unlike traditional buy-to-let properties leased on a six-month assured shorthold tenancy (AST) agreement, serviced accommodation offers greater flexibility with the option to rent for short or extended periods.

This arrangement presents an opportunity to significantly boost rental income compared to monthly AST payments. For instance, renting out a property for short stays at £80 a night or £560 a week may surpass the £600 monthly income from an AST.

Although there might be occasional void periods, location and marketing efforts can lead to surpassing the monthly AST rental income.

Furthermore, property owners find that selling a short-term rental is often easier and quicker since there are no tenant considerations involved.

How to set up serviced accommodation

When establishing serviced accommodation, ensure the following are in place:

Appropriate Mortgage: Avoid using buy-to-let or standard mortgages, as it breaches the lender’s terms.
Renting Permission: Check if your lease permits short-term lets.
Adequate Insurance: Obtain specialized insurance for comprehensive coverage.
Planning Permission: Consult the local council for regulations on serviced accommodation, rental periods, and potential change of use requirements.

Additionally, fully furnish the property, ensure utilities and WiFi are operational, and arrange for servicing aspects like cleaning and laundry. You can handle this yourself if available, or hire a professional company to manage guests and services, which incurs additional costs.