In recent years, serviced or hotel apartments have emerged as a major component of the GCC lodging market. Even at the luxury end of the sector, most hotel apartment buildings are built before an operator gets involved, meaning the mix of unit types - such as studios, one-bedrooms - is a fait accompli. But if operators do get to decide on the mix, many complex considerations come into play.
Hotel apartments are the most flexible type of hotel accommodation in terms of length of stay, being suitable as much for annual residents as for overnight guests. In theory, it is true to say that studio and one-bedroom apartments are better suited to daily and weekly demand, while two-bedroom apartments and larger units appeal to monthly and annual stayers.
Studio apartments, being single-bay units, are closest in concept to standard hotel rooms, and therefore the easiest type of unit to let on a daily basis. Equally, in the larger, multi-bedroom letting units, there is extra space to provide residential-style facilities such as full kitchens, spacious living room areas with dining tables and/or work desks, multiple bathrooms/toilets, and even maids’ rooms.
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However, this is an over-simplification, as in fact most international brands consider even studios to be appropriate for long-stayers, especially single guests. It is also true that larger units are better suited to accommodate bigger guest parties, regardless of their length of stay, for example, large families, teams of business people or tourist groups, especially since apartments are often charged per key, rather than per head.
In the GCC markets, hotel apartment demand changes according to the season, with the general pattern in Dubai, for example, being for individual or small-group corporate guests to dominate the winter high season, only to be replaced in the lower-priced summer season by intra-regional families visiting on holiday.
Also, looking beyond the annual seasonality, lodging market conditions change in cycles with years of strong demand typically allowing hotel apartment buildings to compete with hotels for higher-priced daily demand, while in soft conditions they fall back on more discounted longer-term demand.
A key consideration that can help to minimise investment risk is therefore the ability to ‘future-proof’ the mix by achieving a compromise between small and large and therefore short-term (higher priced/lower occupancy) and long-term (lower-priced/higher occupancy) units.
One way to do this is to combine studios with one- or two-bedroom units using interconnecting doors, which allows a more flexible response to changing market conditions.
Potential guests may also compare stand-alone hotel apartment buildings with others that are twinned with hotels, residential apartments, offices, shopping malls, etc.
If the hotel apartment building is attached to, or integrated with, a conventional hotel containing its own mix of standard rooms and suites, then it will also be important to ensure that the hotel suites and hotel apartments are correctly differentiated, so as to avoid ‘cannibalisation’ of the property’s potential target markets by two of its own unit types.
However, the ability to share the ‘full-service’ F&B, business, meeting and leisure amenities typical of a luxury hotel can make hotel apartments that are attached to hotels more attractive, both to guests and to operators.
Given that hotel apartments are by definition ‘dry’ in the GCC, access to bar service in an adjacent hotel can be an important differentiator.
Equally, if the hotel apartments are located in a complex that also contains conventional residential apartments, then there can be confusion between the two types of units when it comes to the selection decisions of potential long-term tenants, especially if the residential apartments are furnished but not serviced, and have elaborate tenant amenities such as club, gym and childcare facilities.
Unit floor area is a less important selection factor for hotel apartments than for residential apartments, and thus hotel apartments are often smaller than their residential equivalents.
If the subject property is to offer condo apartments (hotel apartments for individual freehold sale), then the preferences of unit buyers must also be taken into consideration, in addition to those of the end users. If units are sold purely for investment, then studios and one-bedroom units work best.
If buyers are given the option to occupy or lease annually, then a broader mix of units can be justified.
Guy Wilkinson is a director of Viability, a hospitality and property consulting firm in Dubai. For more information, e-mail: guy@viability.ae
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