2017 set to be a record year for extended stay stock expansion

09 December 2016

2017 will see record levels of stock expansion for the extended stay market according to new research from international real estate advisor Savills, with the firm forecasting that over 2,600 units will be delivered over the year, a 13.8% increase on 2016 stock levels.

Savills notes that the increase in stock will be predominantly driven by regional markets, which are set to experience 20.5% stock expansion, compared to London’s 8.1% increase. Of the new stock, 82% will be delivered in the major regional cities, with Manchester leading the charge with expansion levels of 73%.  This expansion drive is an extension of the trend seen over the last three years that reflects operators growing appetite to develop their own branded portfolios.

Marie Hickey, commercial research director at Savills, comments: “Regional markets are set to have a record breaking 2017 in terms of extended stay stock expansion, including serviced apartments and apart-hotels. This could create some short-term operational performance issues due to supply absorption, however the dominance of apart-hotels in the development pipeline and their ability to tap into the leisure segment should help minimise any potential adverse operational impacts as we forecast RevPAR growth at the end of 2017 to remain in positive territory. ”

The development pipeline continues to be dominated by the UK’s largest operators, with the top 10 accounting for  54% of the circa 3,800 units expected to be delivered by the end of 2019, reports Savills. Staycity looks set to improve its lead as the largest operator in the UK with 680 units in the pipeline, increasing current stock levels by 57.9% by the end of 2019.

Richard Dawes, associate director in Savills hotels team, adds: “Investment in the extended stay market is battling a lack of purpose built stock, against a backdrop of improving investor interest due to its similarities to the traditional hotel market and it’s potential crossover with the private rented sector. As a result we are starting to see an uptick in forward funding activity as a way for institutional capital to access this exciting sector.”

Savills research notes that the growth in the development pipeline has been assisted by increased participation by  institutional investors in  forward funding transactions.  UK institutional investors currently own 11% of future development schemes (those due to complete between 2017-2019), an increase on their 3% share in 2014.

Overseas owner-operators and investors are also contributing to the expansion in the development pipeline, with development ownership from this group rising from 10% to 19% over the same period.

 

 
 

Key Contacts

Marie Hickey

Marie Hickey

Director
Commercial Research

Savills Margaret Street

+44 (0) 20 3320 8288

 

Richard Dawes

Richard Dawes

Associate Director
Hotels Agency

+44 (0) 20 7499 8644