Dean Madge is the general manager of two luxury serviced apartment businesses in London, Cheval Three Quays and Cheval Calico House. He explains to Janet Harmer why the sector has the potential for significant growth
What enticed you to move from hotels into the serviced-apartment sector?
I had stayed in serviced apartments in New York and Paris, and enjoyed the freedom and flexibility they offered. I looked at some of the Cheval properties and was immediately impressed with the product, which is at the top end of the market. I'd also read a lot about the opportunity for growth within the sector (see panel on Prediction for Growth in Serviced Apartment Market) and thought that it would be exciting to be part of that growth, as well as add diversity to my career.
Tell us about Cheval
Cheval Residences, which is the managing agent for Cheval Property Holdings, a company incorporated in Jersey, owns eight serviced apartment blocks in London. Cheval Three Quays launched in March, while Cheval Harrington Court in South Kensington became the group's eighth apartment residences when it opened in June after being refurbished from a former Go Native property.
Give us an insight into the two properties that you manage
Cheval Three Quays is in a great location next to the Tower of London, overlooking the River Thames and Tower Bridge, and is equivalent to the standard of a five-star hotel. Ten years ago the area was pretty much a ghost town, but now it has a strong neighbourhood feel and there is plenty of life here during the evenings and weekends, while still remaining tranquil The Three Quays name originates back to the 17th century when there were three individual quays here: Galley Quay, Chester Quay and Brewers Quay. In recent years an office building stood on the site, which we have demolished and redeveloped.
The 159 apartments are split between 97 serviced apartments, where guests can stay for up to 90 days; and 62 extended stay apartments, which can be rented for a minimum of three months. They range in size from one to three bedrooms, with two penthouses. We don't operate any food and beverage at Three Quays, but we are currently in the process of renting out the ground floor space to three third-party operators. One will be a full-service restaurant, which will serve breakfast and provide room service to the apartments.
Calico House is in the heart of the City of London, just off Bow Lane, with some great views over St Paul's Cathedral. It features 45 extended stay one-, two- and three-bedroom apartments, as well as two penthouses.
Explain the difference between serviced and extended stay apartments
It is basically down to the length of stay. The serviced apartments have a hotel licence, which allows them to be let in exactly the same way as a hotel lets a bedroom, with guests booking for just one night or for any period up to 90 nights. Meanwhile, extended stay apartments involve the signing of a contract to rent
the property for a minimum of three months, with the clients either paying for council tax, utility bills and TV licence separately or paying an inclusive rate to include all the bills and a complimentary weekly clean. Around 95% of people choose to pay the inclusive rate as it makes life easier for them.
The serviced apartments are currently cleaned and the linen changed five days a week, although this is going to increase from 1 January 2015 to seven days a week - exactly the same as in a hotel.
There are no VAT implications when renting an extended stay apartment, but VAT is added to the serviced apartment rates. The average length of stay in the serviced apartments during the summer was seven to 10 days, with leisure guests making up the majority of the business, while now high-end corporate guests have replaced them and they tend to stay for an average of three to four nights. In the extended stay apartments, most clients rent for between 12 and 18 months.
What has been the biggest change for you moving from hotels to serviced apartments?
Although the two properties I look after are incredibly busy - Calico House is full and Three Quays has a combined occupancy across the serviced and extended stay apartments of more than 85% - I seem to have more time to think and plan than when I was working in hotels.
I think that is largely due to the fact that I don't have responsibility for food and beverage, which can be a distraction. Therefore I have more time to spend with the staff and guests and hence more opportunity to provide true hospitality. The staff also have more time to spend with guests, something they find very motivating.
What we don't do at Cheval is sell to people once they are with us. Any opportunity to upgrade or provide extras is offered before the guest arrives. Of course, we are always available to provide them with anything they ask for after they've arrived, but it is not our intention to sell in people's faces. This gives the guest a chance to breathe and creates a relaxed environment.
Working in serviced apartments is all about hospitality. The service culture within hotels is totally transferable to this sector. Around 60 to 70% of our management meetings are taken up with talking about how we deliver great service.
What are the key advantages for guests of staying in a serviced apartment?
I've already mentioned the relaxed feel of the properties, but with the addition of kitchen facilities they offer flexibility and great living space. The product itself is very high-quality and provides a wow factor, along with thefabulous view along the river to Tower Bridge at Three Quays and across the City at Calico
House. But one of the key reasons people come back to us is because of the service provided by the staff.
The maids are introduced to guests when possible, which enables a relationship to build up between the two parties. This is particularly important for anyone staying long term as they are likely to have more of their personal effects with them, compared with when on a short visit. The maids will be able to help out with shopping chores if needed.
The apartments are particularly good for families because of the extra space they provide. Family rooms in hotels can provide extra beds, but they often end up being cramped and not relaxing for everyone.
How do you enthuse the staff?
We want the staff to be able to experience what the guests experience, so all new starters will stay in one of the apartments when they join us, regardless of their position. Once they have touched and felt the product, then they can talk about it with confidence and enthusiasm.
Cheval is a good employer, which is highlighted by the fact that the average length of service among staff is nine years. On top of a good salary, the company offers a bonus scheme, private healthcare for all the family, ticket loans and 22 days holiday minimum per year. A happy team equals happy guests, and
the financials then follow.
What are your thoughts on the future growth of the serviced apartment sector?
From the point of view of investors and operators, serviced apartments are an attractive proposition as they are more profitable than hotels. Rooms are more profitable than food and beverage, which tends to be heavily labour intensive. I think the fact that the major hotel groups are jumping on the bandwagon now - such as InterContinental with its Staybridge brand and Accor with Adagio - is a sign that this a growth sector.
As guests become more aware of the value and extra space that serviced apartments can provide, they will create more demand, which will help drive the growth. An entry level one-bedroom apartment at Three Quays will cost an average of £245 +VAT, with a better rate if purchased in advance. Measuring 51 sq m, this compares favourably to the nearby Doubletree by Hilton hotel at the Tower of London, where the entry level room measures 21 sq m.
How big a challenge is the serviced apartment sector to hotels?
It is definitely becoming an increasing challenge. As more people use us and see what we can offer them, more of them are turning their backs on hotels. In particular we are appealing to high-end corporate business, who have to stay in London for several months at a time. Having worked in hotels, I know that hoteliers don't generally regard serviced apartments as being part of the hospitality industry and don't understand the quality of what we offer. But the reality is that we are targeting the same customers as they are and therefore they should regard us as competitors.
How easy is it for the public to differentiate between different serviced-apartment companies?
It's not easy at all; there is a lot of confusion among both customers and the industry. It is a relatively new sector and we need something to define what each level - whether it is at the budget or top end - will provide guests. The new Quality Assurance scheme being set up by the Association of Serviced Apartment
Providers (ASAP), of which Cheval is a member, will help.
There is now a huge wave of operators at every level of serviced apartments, with the likes of Jumeirah Living, Fraser and Taj 51 Buckingham Gate at the very top, where there will be 24-hour security and concierges in place, while at the other end guests may arrive at an apartment and have to let themselves in using a PIN code.
Do you see your long-term future in serviced apartments?
I've always regarded the sector I work in to be hospitality and that encompasses both hotels and serviced apartments. I'm happy to remain working in serviced apartments for some time, but I could just as easily move back to hotels.
Predicted growth in serviced apartments
There is an opportunity for significant growth in serviced apartments, where the UK market is moving to catch up with its counterpart in the USA, according to the UK Serviced Apartment Report, published by real estate company Savills in October 2013. Investment in USA serviced apartments amounted to £1.3bn during 2013, compared with only £123.5m in the UK, says the report, while today Savills puts the current number of serviced apartments in central London at
around 10,300, which amounts to 12.7% of all hotel bedroom supply.
Tim Stoyle, head of hotel valuations at Savills, said: "The USA is a bigger market so like-for-like comparisons are difficult, but the dramatic difference in volumes does demonstrate the significant potential for growth in the UK market."
Meanwhile, as a reflection of the growing sector, the Association of Serviced Apartment Providers (ASAP), the trade association in the UK, is planning to double its membership to 180 operators, representing 30,000 apartments, and agents during the next two years.
Dean Madge career to date
- 2013-date General manager, Cheval Residences
- 2012-2013 General manager, Malmaison London
- 2011-2012 Cluster general manager, London Heathrow, Premier Inn
- 2008-2011 General manager, Heathrow Airport Premier Inn
- 2004-2008 General manager, London Kings Cross St Pancras Premier Inn
- 2002-2004 General manager, Brighton City Premier Lodge
- 2000-2002 General manager, Wembley Premier Lodge
- 1995-1997 Front desk manager, Hanbury Manor Marriot Hotel & Country Club
- 1992-1995 Front of house manager, Courtyard by Marriott Milton Keynes
- 1989-1992 Front desk manager, Edgwarebury hotel, Elstree, Hertfordshire