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Record year ahead forecast for extended stay stock expansion

09 December 2016 by
Record year ahead forecast for extended stay stock expansion

Record expansion is forecast for the extended stay market in 2017, according to new research from international real estate advisor Savills.

It is predicted that more than 2,600 units will be delivered over the year, a 13.8% increase on 2016 of extended stay stock, including serviced apartments and aparthotels.

The increase will be driven predominantly by regional markets, which are set to experience 20.5% growth, compared with an 8.1% increase in London. Of the new stock, 82% will be delivered in the major regional cities, with Manchester leading the way with expansion levels of 73%, reflecting the trend over the last three years, which has seen operators growing their branded portfolios.

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

Savills notes that the growth in the development pipeline has been assisted by increased funding from institutional investors. 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.

Ownership from overseas owner-operators and investors is set to rise from 10% to 19% over the same period.

Marie Hickey, commercial research director at Savills, said: "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 aparthotels 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. "

Richard Dawes, associate director at Savills' hotels team, added: "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."

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