Traditional hotel owners and operators have been morphing to enter the somewhat newer space between residential and hospitality. This can take shape in many forms including branded residential, co-living and senior living.

In a panel hosted by Vedika Jhunjhnuwala, Senior Consultant, Horwath HTL UK, three industry leaders shared their thoughts on the topic:

  • Christian Bunte, Managing Director, Avington Group, an ultra-luxury hospitality asset manager, investment bank and family office
  • Dr. Sabine Schaffer, Managing Partner & Cofounder Proinvest, a global fund that develops and operates hotels and flexible living assets
  • Grant Mckenzie, Operations Director, Chris Stewart Group, a Scottish luxury operator and developer of luxury serviced apartments and select service hotels.

How are properties in this sector different from traditional hotels?

Hoteliers often try to do many things but end up leaving guests less than impressed. By focusing on what we are good at, providing excellent accommodation, we can ensure consistency and meet or exceed guest expectations. Public areas within (or adjacent to) the apartment product can then be leased out to experts in the area such as specialist gym operators, F&B providers and retail, allowing us to optimise space and operating efficiencies, shared Grant Mckenzie.

Dr. Sabine Schaffer noted: “Operating a significant portfolio of economy and mid-market hotels in Australia, we found that a significant proportion of guests were staying for extended periods, so realised the opportunity to create a flexible living product with specifically met guest needs. Guests told us they wanted practical private living space (with cooking facilities) and communal areas for collaborative work and socialising – in a central, convenient location.”

What makes this shift attractive for traditional hotel owners?

According to Dr Sabine Schaffer, while there is, of course, a continuing place for traditional hotels, there are three main reasons to make this shift to a residential style operation:

  1. lower OPEX: due to lower need for housekeeping and other guest services
  2. higher occupancy: as guests stay for longer, the occupancy of the assets are higher and less variable
  3. cap rate compression: residential assets are privy to lower cap rates than hotel assets, creating an advantage for assets that shift towards the residential sector.

What is the proven path and where is the new horizon?

While branded residential may seem new, the first true luxury branded residential project was in the 1980s said Christian Bunte. Today, most luxury developments have a branded residential component, and this now represents 75% of the projects Avingstone works on. The premiums of branded residential units compared to similar unbranded residences in the same market can be over 100% and, if they are part of a hotel rental programme, the income they generate can provide meaningful upside at the time of refinancing or exit, making them appealing for developers.

Innovation is where the new horizon lies. Avington Group’s principals, having extensive experience in the luxury hotels sector, saw a gap at the top end of the senior living and care market. They invested in and advised the luxury senior living and dementia care concept

Loveday, taking their expertise in hospitality to another sector. Loveday has proven successful in London, with expansion occurring into the UK countryside and other affluent European markets. The demand for this product is spurred by adult children who want their parents to experience luxury services, amenities, and programming that are not too dissimilar to those at a luxury hotel that the parents would have experienced earlier in life.

In summary

The shift to a longer stay and residential product is appealing for traditional hotel owners, with higher operating efficiencies as well as investment appeal. The opportunity is global as the market is largely unsaturated. In particular, branded residential, is appealing for developers to finance their hotel projects through sales of units at high premiums.

Further information

For further information on any of the services that Horwath HTL UK can provide, please contact Vedika Jhunjhnuwala.

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