Build and they will invest

■ The sector still lacks institutional grade stock on any large scale. It is this that is limiting transaction activity. This is likely to improve over the next five to 10 years as more developers/ investors deliver purpose built stock into the market.

■ This has made it difficult to identify an institutional yield. This may be resolved once the Adagio Whitechapel development site has been sold, which is on the market quoting 5.5% reflecting its location and strength of the Accor covenant. From an investor perspective, if this yield is achieved it would suggest greater alignment with hotels indicating strong investor confidence in the sector and its brands.

"Branding in the sector is expected to pick up pace as operators look to differentiate product across their portfolio"

Outlook

Investors no longer seeing the sector as distinct to hotels

■ Branding in the sector is expected to pick up pace as operators look to differentiate product across their portfolio. This will help boost consumer and investor confidence.

■ The adoption of Clause 34 as part of the Deregulation Bill is unlikely to have a significant impact. We expect that the Secretary of State will restrict its use to owner-occupiers and to certain areas in London and not make it available to commercial landlords.

■ Regional expansion by the Aparthotel brands is likely to slow after 2017 as they gain a foothold across primary cities. However, we expect some of the dedicated London operators will look to expand outside the Capital with their Aparthotel type product.

■ London will continue to be the main focus for operator expansion.

■ Investors/developers and lenders will become increasingly comfortable with the sector and are likely to see it as an extension of the hotel sector. However, this will be dependent on assets having a C1 consent.

■ This confidence in the sector is likely to be reflected in transaction yields. Location and strength of covenant will become the chief concerns over the property specifics of the asset. As a result we expect that prime yields are in the region of 5.5%.

Taken from:
UK Serviced Apartment Report - Q4 2014