Investing in Serviced Accommodation: A Comprehensive Guide
by Property Investments UKThe Property Investments UK editorial team have been researching and writing about the UK's property market for more than a decade.
Serviced accommodation has become very attractive to landlords and property investors in recent years. Here’s our guide to what you need to know if you are considering investing in serviced accommodation.
- What is Serviced Accommodation?
- Types of Serviced Accommodation
- What Should a Serviced Let Include?
- Does Serviced Accommodation Always Have to be Furnished?
- The Pros of Investing in Serviced Accommodation
- The Cons
- What Type of Guests Would You Expect?
- Example Yields
- London's 90-Day Rule
- Big Companies in this Space
- Setting Up a Serviced Accommodation Let
- Professional Services
- How to Invest in Serviced Accommodation
- Important Points to Consider
- What Type of Mortgage is Needed?
- Should You Invest in Serviced Accommodation?
What is Serviced Accommodation?
Serviced accommodation is fully furnished, self-contained accommodation with hotel-style services included.
Serviced accommodation comprises a wide range of accommodation options. It can be budget accommodation or high-end accommodation. It may be accommodation let by the day, by the week or the month. Serviced accommodation serves several different markets including tourists and leisure travellers, business people, contractors and others.
From a property investment point of view, an important thing to know is that serviced accommodation is a type of short-term letting.
Types of Serviced Accommodation
The realm of serviced accommodation offers a diverse range of options to cater to travellers' varying needs and preferences. In this section, we will focus on three prominent types of serviced accommodation: serviced apartments, apart-hotels, and corporate housing.
We have chosen not to cover the more classic Airbnb-style rental houses in the following subsections, as they represent the most common form that serviced accommodation takes and are already widely recognised. Instead, we aim to provide a comprehensive understanding of the other specialised serviced accommodation alternatives available in the UK, which may offer unique benefits and advantages to travellers seeking a more tailored experience.
Serviced apartments represent a popular accommodation option that skilfully blends the comforts and privacy of home with the conveniences and services typically associated with hotels. These apartments are specifically designed to offer guests fully-furnished living spaces, complete with essential amenities such as bedrooms, living rooms, fully-equipped kitchens, and private bathrooms.
Often situated in prime locations with convenient access to public transport, dining establishments, and local attractions, serviced apartments cater to a diverse range of travellers. These include business professionals, families, and individuals seeking a more personalised experience. In this section, we will explore in greater detail the features, amenities, and benefits that contribute to the growing popularity of serviced apartments as a preferred choice for accommodation in the UK.
- Features and amenities: Serviced apartments offer an array of amenities catering to diverse travellers' unique needs. Guests can expect spacious, fully-furnished living spaces encompassing bedrooms, living rooms, fully-equipped kitchens, and private bathrooms. Additional amenities often include Wi-Fi, laundry facilities, and housekeeping services. Moreover, many serviced apartments provide access to on-site facilities such as gyms, swimming pools, and parking areas.
- Ideal for business travellers and families: The versatility of serviced apartments makes them an attractive choice for various types of travellers. Business professionals can benefit from a comfortable and productive environment during extended stays, while families can enjoy the additional space and amenities that surpass those offered by traditional hotel rooms. The self-catering facilities and home-like atmosphere contribute to the appeal of serviced apartments for extended stays and vacations.
Aparthotels have emerged as a contemporary accommodation option which is gaining popularity among property investors seeking to capitalise on the demand for a harmonious blend of home-like comforts and hotel-style services. Typically housed within modern, purpose-built buildings or refurbished historic structures, aparthotels can be found in prime locations across urban centres, business districts, and popular tourist areas in the UK.
In this section, we will explore the unique features, facilities, and services that make aparthotels an appealing investment choice for those looking to cater to the needs of travellers who desire the flexibility of a serviced apartment with the added convenience of hotel amenities. By understanding the distinct advantages of aparthotels, investors can make informed decisions on the potential of this growing market segment in the UK's property landscape.
- A hybrid between a hotel and serviced apartment: Aparthotels are a unique blend of hotel and serviced apartments, offering guests the comforts of a fully-furnished apartment with the added convenience of hotel-like services. These accommodations typically provide a range of self-contained units, including studios, one-bedroom, and two-bedroom apartments, all equipped with the necessary amenities such as a kitchenette, living area, and private bathroom.
- On-site facilities and services: Aparthotels often boast a variety of on-site facilities and services similar to traditional hotels, such as reception desks, room service, and daily housekeeping. Additional amenities may include fitness centres, meeting rooms, and restaurants or bars. This fusion of apartment-style living and hotel services makes aparthotels an attractive option for those seeking a balance between independence and convenience during their stay.
As the business landscape evolves and global mobility becomes increasingly prevalent, the demand for specialised accommodation solutions tailored to the unique requirements of business travellers has grown. Corporate housing addresses this need by offering fully-furnished, comfortable living spaces, coupled with a range of services designed to facilitate extended stays or relocation experiences for professionals.
In this section, we will explore the distinct features and advantages of corporate housing, shedding light on how this niche segment caters to the needs of business travellers and presents potential investment opportunities in the UK property market. By understanding the specific benefits of corporate housing, investors can make informed decisions on the potential of this growing market segment in the UK's property landscape.
- Tailored for business travellers: Corporate housing is a type of serviced accommodation specifically designed to cater to the needs of business travellers, particularly those on extended stays or in the process of relocating. These properties often provide fully-furnished apartments or houses with the necessary amenities, such as a well-equipped kitchen, comfortable living spaces, and dedicated work areas, ensuring a seamless transition and a productive stay for professionals.
- Long-term stays and relocation: Corporate housing is typically available for stays of a month or longer, making it an ideal solution for employees on temporary assignments, projects, or those relocating to a new city. In addition to the comfortable living spaces, corporate housing providers often offer additional services, such as assistance with local registration, utility setup, and access to local amenities, to support their clients in adjusting to their new surroundings and integrating into the community.
What Should a Serviced Let Include?
Serviced accommodation typically includes fully furnished apartments or properties that are equipped with essential amenities and services to make a tenant's stay comfortable and convenient. The exact inclusions may vary depending on the provider, but most serviced accommodation should include:
- Furnishings: The apartment or property should be fully furnished, with all necessary furniture and appliances like beds, sofas, tables, chairs, refrigerators, and cooking equipment.
- Housekeeping: Regular cleaning and maintenance services should be provided, which may include cleaning, linen changes, and waste disposal.
- Utilities: All essential utilities like water, electricity, heating, and air conditioning should be provided and included in the rental price.
- Internet and communication: Internet connectivity and communication facilities like phone lines should be provided.
- Security: Serviced accommodation should provide security measures to ensure the safety of tenants and their belongings.
- Access to amenities: Depending on the provider, serviced accommodation may offer access to additional amenities like a gym, swimming pool, or communal areas.
- Flexible terms: Serviced accommodation should offer flexible rental terms to accommodate the varying needs of tenants.
- 24/7 customer service: Serviced accommodation will often provide 24/7 customer service to assist tenants with any issues or queries that may arise during their stay.
- Location: Serviced accommodation is typically located in central locations, close to public transportation, shopping, dining, and entertainment options.
Overall, serviced accommodation offers a comfortable and flexible alternative to traditional hotels and rental properties, providing a "home away from home" experience for short-term or extended stays.
Does Serviced Accommodation Always Have to be Furnished?
Yes, serviced accommodation lets typically have to be furnished, as the inclusion of furniture and essential amenities is one of the key features that distinguish it from traditional rental properties. In fact, most serviced accommodation providers offer fully furnished apartments or properties that come equipped with all necessary furniture and appliances like beds, sofas, tables, chairs, refrigerators, and cooking equipment.
The inclusion of furniture and other essential amenities is one of the reasons why serviced accommodation is often more expensive than traditional rental accommodation. However, the added cost is usually offset by the convenience and flexibility of serviced accommodation, which provides a comfortable and homely environment for short-term or extended stays and often includes additional services like housekeeping, 24/7 customer service, and access to amenities like gyms and swimming pools.
The Pros of Investing in Serviced Accommodation
Here are some of the possible advantages of investing in serviced accommodation:
- Strong rental income potential. Achievable rents from serviced accommodation are generally much higher than they would be for letting similar accommodation on a long-term let.
For example, a property let on a long-term rental at £750 PCM could potentially achieve £750 per week on a short-term let.
- Strong yield potential. Serviced accommodation offers high yield potential. A property let on a short-term let should achieve a much higher rent but will cost the same to buy as a property let on a long-term let.
Knight Frank says that the profitability of the serviced apartment sector outperforms the regional UK hotel market. They say that serviced apartments achieved a GOP margin of 43% for the 12 months to May 2022.
- Serviced accommodation is a growing sector within the accommodation market. More people are realising the benefits of staying in serviced accommodation compared to, for example, a hotel or B&B. Serviced properties usually not only include a bedroom but living space and kitchen facilities too.
- Possible gaps in the market to be exploited. As the sector is fairly new many places do not yet have any serviced accommodation, or not enough to satisfy growing demand.
The recent Global Serviced Apartment Industry Report says that serviced apartments are more popular than ever. They add that while large corporates’ use of hotel accommodation is falling, their use of serviced accommodation is increasing.
- New tech. is making it easier to find and manage serviced accommodation lettings. For example, platforms such as Airbnb, Vrbo, Expedia and Booking can all be used to market your serviced accommodation and manage bookings.
- Tenancy laws and regulations in short-term lettings are broadly advantageous to landlords. Serviced accommodation is generally let on an informal licence basis rather than an Assured Shorthold Tenancy or AST.
Guests in serviced accommodation do not have any security of tenure, any rights to occupy the property long term, nor benefit from other tenancy rights. It is easy for landlords to terminate a short-term let, evict tenants should it be necessary and exit the market if they wish to.
- Serviced accommodation may offer possible tax benefits. For example, serviced accommodation may count as a furnished holiday let (or FHL) meaning that mortgage interest can be claimed as a tax allowance. This contrasts directly with standard buy-to-let, where Section 24 restricts tax allowances for mortgage interest.
With serviced accommodation, it may be possible to make a saving by paying business rates instead of Council Tax. There could also potentially be opportunities to mitigate Capital Gains Tax and Inheritance Tax.
It is essential to take professional financial advice on what tax advantages and disadvantages may be involved before investing in serviced accommodation.
Here are some of the possible disadvantages of investing in serviced accommodation:
- Serviced accommodation is usually fully furnished and equipped. This is likely to include furniture, soft furnishings, kitchen appliances and equipment etc. So setting up serviced accommodation in the first place will require a larger initial capital outlay than a long-term let. As well as the original outlay wear and tear and repair/renewal costs are likely to be higher too.
- Serviced accommodation by definition needs to be serviced. Housekeeping services, such as towel changes, linen changes and cleaning will need to be provided on a regular basis. This may be daily or several times per week.
You will need to make arrangements to provide service and budget for this in your costs.
- Overheads will be higher than a property on a longer term let. With serviced accommodation the landlord pays the Council Tax or similar. Serviced accommodation lets normally include all utility bills, TV and Internet costs etc. in the rent.
- Leasehold issues. Properties that are owned on a leasehold basis may have restrictions within the lease that prevent or restrict short term lets and serviced lettings. Investors should check before investing in property for short term let investments.
- Mortgage finance issues. Most lenders have restrictions on serviced lets and short-term lets in properties with residential or buy-to-let mortgages. It may be necessary to use specialist finance to buy or refinance, which is likely to be more expensive.
- VAT. Value Added Tax is chargeable on serviced accommodation lets, but is not on long-term AST lets. This may impact the individual investor’s tax situation. Again professional financial advice should be taken.
- Local restrictions. Some areas have or are planning, restrictions which prevent or limit property owners from letting their property on a short-term let basis. They may do this through landlord and property licensing regulations or via planning controls.
Unless planning permission is obtained, London property owners are restricted to renting their property short-term for a maximum of 90 nights in a calendar year.
What Type of Guests Would You Expect?
Serviced accommodation is popular among a diverse range of guests, including:
- Business travelers: Serviced accommodation offers a convenient and flexible alternative to hotels for business travelers who need to stay in a location for an extended period. They offer a comfortable and private space to work and rest while providing essential services like housekeeping and 24/7 customer service.
- Tourists and holidaymakers: Serviced accommodation can be a great option for tourists and holidaymakers who are looking for a comfortable and convenient base from which to explore a new city or region. They often offer more space and privacy than hotels and provide access to essential amenities like kitchen facilities, laundry facilities, and communal areas.
- Relocating professionals: Serviced accommodation can be an excellent option for professionals who are relocating for work and need a temporary place to stay while they search for a more permanent home. They offer a flexible and convenient option for short-term stays and can be more cost-effective than hotels or traditional rental properties.
- People undergoing medical treatment: Serviced accommodation can be an ideal option for people who are undergoing medical treatment and need to stay in a location for an extended period. They offer a comfortable and homely environment and can provide essential services like housekeeping and access to amenities like laundry facilities.
Overall, serviced accommodation is ideal for anyone who needs a comfortable and convenient place to stay for a short-term or extended period, whether for business or leisure.
Example long-term buy-to-let yield:
£200,000 purchase price
Property let for 11 months of the year at £1,100 PCM, total £12,100 PA
Yield is 6.05%
Example serviced accommodation yield:
Property let for 250 nights of the year at £100 per night, a total of £25,000 PA
Yield is 12.5%
London's 90-Day Rule
The 90-day rule for serviced accommodation in London refers to a regulation introduced by the Greater London Authority in 2015. The rule limits the amount of time that a property in Greater London can be rented out as short-term accommodation to 90 days per calendar year.
The rule was introduced to address concerns about the impact of short-term rental properties on the availability of long-term housing in the city. By limiting the amount of time that properties can be used for short-term rentals, the aim is to encourage property owners to rent out their properties on a long-term basis, thereby increasing the availability of affordable housing in the city.
The rule applies to all properties in Greater London that are used for short-term accommodation, including serviced apartments, Airbnb rentals, and other forms of short-term rental accommodation. Property owners who wish to rent out their properties for more than 90 days per year must obtain planning permission from their local council.
It's worth noting that the 90-day rule applies to the property, not the individual owner. This means that if a property is owned by multiple individuals, the 90-day limit applies to the property as a whole, rather than to each individual owner.
The 90-Day Rule in Brief
The 90-Day Rule refers to a restriction on renting out rooms and apartments in London for short-term stays. Specifically, the rule limits the number of days you can rent out a room per year to 90. This regulation is designed to maintain a balance between residential and tourist accommodation in the city.
Strategies for Overcoming the 90-Day Rule
- Change the Property's Classification
If your primary strategy is serviced accommodation and you are determined to rent out a property in London for more than 90 days per year, consider changing the property's classification. London properties are typically classified as C3 (residential dwellings). To bypass the 90-Day Rule, you can apply to the local council to change the property's classification to C1 (hotels and guesthouses).
It is important to note that this process can be time-consuming and costly, and it may not be recommended if you do not own the property outright. However, if you are looking to maximise your profits from London's property market, this legal solution can be worthwhile.
- Rent for Exactly 90 Days During Peak Periods
Another approach is to comply with the rules and rent out your property for exactly 90 days during peak periods. By strategically selecting the most lucrative times of the year, you can still enjoy a healthy return on investment. In fact, 7% of all properties in London are rented out on platforms like Airbnb and Booking.com at some point each year, so there is plenty of opportunity to capitalise on the city's thriving short-term rental market.
- Explore Opportunities Beyond London
One of the best ways to circumvent the 90-Day Rule is to look for investment opportunities outside of London. If you are not tied to a specific location, consider cities like St Albans or Watford, or even venture further north. By keeping an open mind and focusing on areas with more lenient regulations, you can find profitable investment opportunities without worrying about the 90-Day Rule.
London's 90-Day Rule may seem like a significant hurdle for property investors, but with the right strategies in place, you can navigate it effectively. Whether you choose to change your property's classification, rent for exactly 90 days during peak periods, or explore opportunities beyond London, there are legal ways to make the most of the city's property market.
Always remember to consult with professionals, such as solicitors and property advisors, to ensure you are making informed decisions about your investments. By doing so, you will be well on your way to success in London's property market and beyond.
Big Companies in this Space
Expedia Group, Inc. (EXPE)
Description: Expedia is the world's second-largest online travel agency by bookings, offering services for lodging (76% of total 2022 sales), air tickets (3%), rental cars, cruises, in-destination, and other (14%), and advertising revenue (7%). Expedia operates a number of branded travel booking sites, including Expedia.com, Hotels.com, Travelocity, Orbitz, Wotif, AirAsia, and Vrbo.
Market Cap: £11.4 billion
Website: Expedia Group
Booking Holdings Inc. (BKNG)
Description: Booking is the world's largest online travel agency by revenue, offering booking and payment services for hotel and alternative accommodation rooms, airline tickets, rental cars, restaurant reservations, cruises, experiences, and other vacation packages. The company operates a number of branded travel booking sites, including Booking.com, Agoda, OpenTable, and Rentalcars.com, and has expanded into travel media with the acquisitions of Kayak and Momondo.
Market Cap: £79.02 billion
Website: Booking Holdings
TripAdvisor, Inc. (TRIP)
Description: TripAdvisor is the world's leading travel metasearch company. The website offers 1 billion reviews and information on about 8 million accommodations, restaurants, experiences, airlines, and cruises. In 2022, 65% of revenue came from the company's core segment, which includes hotel revenue generated through advertising on its metasearch platform. Viator, its experiences brand, was 33% of sales in 2022, and TheFork, its dining brand, represented 8% of revenue.
Market Cap: £1.78 billion
Airbnb, Inc. (ABNB)
Description: Started in 2008, Airbnb is the world's largest online alternative accommodation travel agency, also offering booking services for boutique hotels and experiences. Airbnb's platform offered 6.7 million active accommodation listings as of March 31, 2023. Listings from the company's over 4 million hosts are spread over almost every country in the world. In the fourth quarter of 2022, 47% of revenue was from the North American region. Transaction fees for online bookings account for all its revenue.
Market Cap: £52.34 billion
Setting Up a Serviced Accommodation Let
Setting up serviced accommodation involves several steps, including finding the right property, furnishing it appropriately, marketing it effectively, and providing excellent customer service. Here is a general overview of the steps involved:
Find the Right Property: Look for properties in desirable locations that have easy access to public transportation, restaurants, and other amenities. Consider the size of the property and the number of guests you want to accommodate.
Furnish the Property: Furnish the property with comfortable and modern furniture that suits the needs of your target market. Ensure that the property has all the necessary amenities such as a fully equipped kitchen, high-speed internet, and cable TV.
Set up Your Website and Listings: Create a website for your serviced accommodation and list it on various online platforms such as Airbnb, Booking.com, and Expedia. Ensure that you provide accurate and detailed information about the property, including the number of rooms, amenities, and location.
Market Effectively: Promote your serviced accommodation on social media platforms and other relevant online channels. Utilize search engine optimization techniques to improve the visibility of your website and attract more bookings.
Provide Excellent Customer Service: Ensure that your guests receive top-notch customer service during their stay. Respond promptly to their queries and address any concerns they may have. Provide them with a clean and comfortable living environment, and make sure that they have everything they need to enjoy their stay.
Manage Your Property: Manage your property effectively by keeping it clean, maintaining the facilities, and addressing any issues that arise promptly. Consider hiring a property management company to help you with the day-to-day management of your serviced accommodation.
Overall, setting up serviced accommodation requires a significant investment of time and money, but it can be a profitable and rewarding business venture if done correctly.
When setting up a serviced accommodation establishment, it's crucial to ensure that the property is presented professionally to attract guests and maintain a high level of customer satisfaction. Here are some professional services to consider:
Cleaning Services: Keeping the property clean and well-maintained is essential to maintaining the satisfaction of guests. Consider hiring a professional cleaning company that specializes in servicing accommodation. This will ensure that the property is always spotless and ready for guests.
Photography Services: Good-quality photos are essential for showcasing the property to potential guests. Consider hiring a professional photographer to take high-quality photos of the property. This will help attract more bookings and make a better impression on guests.
Linen and Laundry Services: Maintaining clean and fresh linens is essential to providing a comfortable and satisfying stay for guests. Consider hiring a professional laundry service to ensure that the linens are cleaned and changed regularly.
Property Management Services: Managing a serviced accommodation establishment can be time-consuming and challenging. Consider hiring a professional property management company that can handle the day-to-day management of the property. This includes guest communication, check-in, and check-out, cleaning, maintenance, and more.
How to Invest in Serviced Accommodation
You can invest in serviced accommodation by, either, buying a new property and letting it as serviced accommodation or by converting an existing buy-to-let to serviced accommodation.
An alternative option is to enter the serviced accommodation market via a rent-to-rent agreement.
In each case, you should check the suitability of the property for serviced lets, and the relevant pros and cons.
Important Points to Consider
Some areas have much more potential for serviced accommodation than others. Urban areas and especially city centres tend to be growth points for serviced accommodation.
Consider your market: Consider who your likely potential guests will be and ensure those people are likely to want to visit that area. For example, will they be tourists or leisure visitors? Will they be business people or contractors?
Supply and Demand
Try to assess what demand exists in the area. Look at tourist and visitor numbers. Look at what large development/infrastructure projects are planned and how long they will last. Look at what local employers there are, such as hospitals, universities and large companies who may attract staff to the area who may need short-term accommodation. These organisations may have accommodation offices that can tell you if they have a need for serviced accommodation.
Check what other serviced accommodation is available in the area, or is planned. In some areas, large serviced accommodation operators may be planning to start up and add significant capacity to the market
Likely Achievable Rents
Different areas have different likely achievable rents. For example, what is possible in a large city may not be possible in a small town. Achievable rents can also vary on a seasonal basis. For example, rents in a prime tourist area in the school holidays will be much higher than at other times.
Do your research on short-term let accommodation sites. See what the asking rents are for similar accommodation to your accommodation in the local area at different times of the year.
Restrictions on Short-Term Lets
Check any local licensing and planning restrictions alongside leasehold restrictions for a property you own or may be thinking of buying. Consider how these will impact your business.
Furnishings and Equipment
The standard of furnishings and equipment in serviced accommodation should be commensurate with the market you are planning to serve and the level of rent you intend to charge. For example, budget or luxury or somewhere in between.
Options for furnishing and equipping serviced accommodation include handling this in-house or using a third-party provider. A number of companies provide professional design services and furniture packs for serviced accommodation.
Marketing and Management
The main options are to market or manage your accommodation yourself or list your site on a short-term accommodation platform such as Airbnb, Vrbo, Expedia or Booking. You may also be able to let your serviced accommodation through local letting agencies, who will be able to list it on sites such as Rightmove or Zoopla.
Check what fees and commissions are charged when listing your property through platforms and agencies.
The options are to organise check-in, check-out, housekeeping, cleaning and maintenance yourself, or to contract a serviced accommodation agency to provide this for you.
What Type of Mortgage is Needed?
When it comes to financing serviced accommodation in the UK, you may need to consider a few different options. One possibility is a commercial mortgage, which is designed for properties that will be used for commercial purposes, such as serviced apartments. However, commercial mortgages can be more expensive than residential mortgages and typically require a higher deposit, so it's important to shop around and compare rates.
Another option to consider is a holiday let mortgage, which is designed for properties that will be let out on a short-term basis. These mortgages may be suitable for a serviced accommodation that is let out on a short-term basis. However, not all lenders offer holiday let mortgages, and they may have different requirements and criteria than traditional buy-to-let mortgages.
Ultimately, the best financing option for your serviced accommodation will depend on your individual circumstances and the specific lender's criteria. It's recommended that you speak to a mortgage advisor who specialises in serviced accommodation to help you find the most suitable financing option for your needs.
Should You Invest in Serviced Accommodation?
In summary, serviced accommodation can offer high rental incomes and high yields to property investors especially when compared to a standard buy-to-let. However, there are additional costs and expenses which must be considered too.
If you are interested in this kind of investment it is important to consider if the serviced accommodation model suits you and your individual investment objectives.