The Rise of Serviced Accommodation: A Lucrative Investment Opportunity [2023]

Serviced accommodation is emerging as one of the fastest-growing sectors in the UK property market.

This hybrid concept, combining the convenience of hotels with the comfort and privacy of apartments, has become increasingly popular among tourists, business travellers, and those seeking longer stays.

If you’re a savvy investor, it’s a sector you should definitely be watching.

But, what is serviced accommodation exactly?

What is Serviced Accommodation?

Serviced accommodation essentially represents a fusion of long-term buy-to-let properties and hotels.

The idea is simple:

Fully furnished properties are rented out to tenants for short-term stays and offer hotel-like amenities.

Unlike traditional buy-to-let properties with fixed-term contracts, serviced accommodation provides flexibility to guests, allowing them to decide the duration of their stay.

The term “serviced” refers to the additional services provided to residents, such as housekeeping, Wi-Fi, laundry, and concierge services.

Depending on the landlord and the property, these services can be tailored to create a bespoke experience, as you would get in high-quality hotels.

This combination of hotel services and the privacy of an apartment appeals to those seeking shorter stays.

Although the term “serviced accommodation” may be new to some, you are likely familiar with one of its largest providers – Airbnb.

The platform has witnessed tremendous growth in recent years and has led to the conversion of many buy-to-let properties, such as Houses in Multiple Occupations (HMOs), into serviced apartments.

Serviced accommodation can come in various forms, including apartments, houses, cottages, caravans, and even houseboats.

Are Serviced Apartments a Good Investment?

Considering the rising popularity of serviced accommodation, many property investors are contemplating its pros and cons to determine whether it’s a suitable investment strategy for them.

There are notable differences between serviced apartments and traditional buy-to-let properties. Serviced apartments tend to have a higher turnover of tenants due to shorter letting periods, which can result in higher profits during busy periods.

However, they also come with higher costs, and the risk of experiencing periods without guests or income is more significant.

Let’s examine the benefits and drawbacks of investing in serviced accommodation:

The Pros:

1. Higher Rental Income: Serviced accommodation allows you to charge higher fees per night compared to traditional buy-to-let properties, potentially increasing your profits.
2. Higher Tenant Turnover: With shorter stays, you will be able to avoid disruptive or unruly tenants for extended periods. Guests come and go more frequently.
3. Flexibility: Serviced accommodation provides greater flexibility, as guests can choose to stay for a few days, or a more extended period based on their needs and bookings.
4. Easier Property Sale: Selling serviced accommodation can be quicker and easier, as you won’t need to wait for a tenant to finish their fixed-term tenancy.
5. Seasonal Rate Adjustments: You can adjust your rates based on the season. If your area experiences high tourism during the summer, you can increase rental rates to take advantage of the demand.
6. Rapid Market Growth: The serviced accommodation market is expanding rapidly, with platforms like Airbnb reporting significant profit increases. This trend is expected to continue.

The Cons:

1. Higher Costs: Furnishing the property and providing additional services like housekeeping and Wi-Fi can lead to higher expenses compared to traditional buy-to-let properties.
2. Longer Void Periods: Relying on tourism for income means there may be significant periods without tenants, but you’ll still have to cover the ongoing costs.
3. Potential for Damage: Guests may book serviced accommodation for parties or other activities that could result in damage to furnishings and property.
4. Increased Marketing Costs: Regularly seeking new guests may necessitate higher marketing expenses as you continually advertise the property online.

In addition to these points, there are other considerations unique to serviced accommodation, such as arranging remote key pickup/drop-off or personally meeting every guest.

However, the pros and cons mentioned above summarize the key aspects of investing in serviced accommodation.

Conclusion

The serviced accommodation sector presents a promising investment opportunity for landlords seeking higher returns and greater flexibility.

By leveraging the rising popularity of short-term stays and providing hotel-like services, landlords can generate increased rental income. However, it’s essential to carefully consider the potential downsides, such as higher costs and longer void periods.

Conduct thorough market research, evaluate the demand in your area, and assess the financial viability before venturing into serviced accommodation investments.

With proper planning and management, serviced apartments can offer a lucrative and rewarding investment experience in the evolving property market – you just need to put in the work!