GLOBAL REPORT—Global hotel companies are expanding their extended-stay brands in Europe as shifting economic trends drive demand and the long-dominant and well-served United States market begins to mature, sources said.
“I think it’s a given that Europe is underserved by the product compared to the United States where there are already an estimated 350,000 extended-stay rooms,” said Mark Skinner, partner at Highland Group Hotel Investment Advisors.
Marriott International, Accor and InterContinental Hotels Group are just a few of the major multinational hotel companies widening their extended-stay offerings in Europe. One of the factors behind the growth is the economic situation.
“There has been an increased interest in the past five years as the United Kingdom and the eurozone economies start to rebound, coupled with brands and entrepreneurs becoming smarter about how to design and build the product to make the economics work,” said Josh Wyatt, investment director of hospitality and leisure at Patron Capital in London.
Significant sums
“We are seeing an increasing number of U.S. and Asian operators enter the market, as well as the established operators, invest significant sums into their teams and balance sheets to make the product work,” Wyatt said.
European economies might be on the mend, but savings are still important to companies that see extended-stay hotels as cost-cutting tools.
Analysts said, for example, that expensive relocations for permanent staff are being cut back in favor of short-term assignments. There is also a rise in the number of temporary employees who might prefer to use extended-stay accommodations in a new posting instead of renting a home.
“It’s so expensive to take on new employees in Europe as it costs a lot to fire them. So there are now more temporary contracts and short assignments,” Skinner said.
Extended-stay hotels are also attractive to skinflint corporate travel offices because the properties offer kitchenettes, eliminating expensive on-the-road restaurant bills.
The U.S. concept of extended stay is generally known as “aparthotel” in Europe. This is a hotel experience for long-term guests, with such common features as kitchenettes, reservations and requiring no minimum stay or lease. They are also mostly standalone properties.
Serviced apartments, on the other hand, often require a 30-night minimum stay and a lease. They also tend to be more upscale, offer larger accommodations and often provide such amenities as gyms, onsite restaurants and 5-star service.
Some serviced-apartment providers have their own properties but might also have agreements with local hotel partners who take in guests when they have a vacancy.
Evolving in Europe
One such brand is U.S.-based BridgeStreet Global Hospitality, which operates more than 50,000 serviced apartments in more than 60 countries. CEO Sean Worker agreed the sector is evolving in Europe.
“This is very encouraging. We’re seeing a lot of guests like engineers, IT professionals and finance people on 30-day or maybe three-month contracts, but for anything longer they’re more likely to rent an apartment,” he said.
“And the leisure market is also becoming interesting with an emerging class of discerning travelers who are looking for a new, more authentic experience by living like a local but wanting access to hotel service and a certain amount of predictability.
“That is what premium serviced apartments like our BridgeStreet brands provide,” he said.
French hospitality giant Accor noticed a growing need in its home market for extended-stay hotels almost a decade ago and created its urban brand, Adagio Aparthotels, in 2007.
It now has 100 properties under that flag or suburban economy brand Adagio Access in eight European countries, the United Arab Emirates and in its newest market, Brazil.
In Europe, new openings are planned for France, Germany and the United Kingdom as well as for a new territory, Spain. Accor is also developing a premium brand.
“The aparthotel concept arrived in Europe in the 1980s,” said Anne-Lise Seurat, the Adagio brand’s director for ecommerce and marketing, “and the European market is still growing.”
“There are three reasons why aparthotels are a very interesting offer: growth in global mobility, consumers looking more and more for savings and a new way of traveling,” she said.
Study the market
A recent arrival in Europe is Marriott’s Residence Inn brand, with two properties opened in Edinburgh and Munich over the past several years after careful analysis of the market.
“We began carrying out studies in 2006 and two years later we had a product ready to go and present to the investment community,” said Jonathan Humphries, Marriott’s VP for international hotel development planning for EMEA.
“There has always been a demand for the concept in Europe but there was no branded, purpose-built, extended-stay projects and people didn’t understand what it offered,” he said. “But with Marriott and its competitors like IHG and Accor now in the market, the public is becoming educated as to what it is all about.”
“The financial and investment community in Europe is starting to understand the concept,” Humphries added.
The U.S.-based chain, which also operates its more upscale Marriott Executive Apartments brand in Europe, has a signed agreement for a Residence Inn in Sarajevo, Bosnia, and has dozens of other deals under discussion.
“Our product is mostly business-focused so we’re looking at regional business hubs with a favorable investment environment. Turkey, for example, has huge potential if you put aside the current political situation,” Humphries said.
Operators accustomed to the U.S. have had to make adjustments in Europe.
“When they’re looking at Europe, one difficulty is finding sites, especially in major cities,” said Skinner of the Highland Group. “Space is definitely a factor there with higher density in urban areas and in some places like Barcelona you have to look at conversions.”
More compact properties can mean smaller room sizes, which some operators had to learn the hard way, said Wyatt of Patron Capital, who has followed the European sector since the 1990s.
“The product has evolved over the years here in Europe to acknowledge the fact that customers do not need huge rooms to be comfortable. Most products, aiming for a 3- to 4-star experience, were trying to build rooms in the 34- to 38-square-meter range (366 to 409 square feet),” Wyatt said.
When the economic crisis hit in 2008, deals had to be refashioned and the average room size is now closer to 24 square meters (258 square feet).
“But the build quality and design is often far more sophisticated and customer friendly than five to seven years ago, making the product more efficient, more economical and better value for the customer, which drives better value for investors,” Wyatt added.
“And specific to the investment side, rooms must be smaller to ensure one can build more keys on a smaller plot of land to amortize the land costs as land in the United States is typically cheaper than in Europe, so developers must do more with less,” he said.