Serviced Accommodation – The Next Big Investment Strategy? [2023]

Serviced accommodation has rapidly emerged as one of the UK property market’s most dynamic and promising sectors.

This innovative concept combines the convenience of hotels with the comfort and privacy of apartments, making it increasingly popular among tourists, working professionals, and individuals seeking longer stays.

For savvy investors, serviced accommodation presents a lucrative investment opportunity that warrants attention.

In this article, we will delve deeper into what serviced accommodation UK entails, how to invest in it, and the potential benefits and drawbacks associated with this investment strategy.

What is Serviced Accommodation?

Serviced accommodation represents a fusion of long-term buy-to-let properties and hotels. The concept is simple: fully furnished properties rented out to tenants for short-term stays, offering amenities on par with traditional hotels.

Unlike regular buy-to-let properties with fixed-term contracts, serviced accommodation provides guests with flexibility, allowing them to choose the duration of their stay based on their specific needs.

“Serviced” refers to the additional services provided to residents, such as housekeeping, Wi-Fi, laundry, and concierge services.

Depending on the landlord and the property, these can be tailored to create a bespoke experience similar to that of high-quality hotels.

While the phrasing “serviced accommodation” may be relatively new, most are almost certainly familiar with one of its largest providers – Airbnb.

Airbnb has experienced remarkable growth in recent years and has played a pivotal role in transforming numerous buy-to-let properties, including Houses in Multiple Occupations (HMOs), into serviced apartments.

Serviced accommodation can take various forms, including apartments, houses, cottages, caravans, and even houseboats.

As the popularity of this accommodation type continues to soar, property investors are actively considering its pros and cons to determine its suitability as an investment strategy.

Why Are Serviced Apartments Becoming Popular?

• Serviced accommodations have gained popularity among different classes of guests for several reasons.
•  Firstly, they offer more space compared to a traditional hotel room, providing guests with a comfortable living environment.
• Secondly, serviced apartments often provide better value for money, as guests can enjoy more space for similar prices to hotels, and in some cases, even at lower costs.
• Thirdly, serviced accommodation offers extra privacy, allowing guests to have their own private living space.
• Finally, serviced apartments are typically located in close proximity to city centres, offering convenient access to transportation and amenities, with parking facilities often available.

These factors contribute to the rising demand for short-term accommodation that meets these criteria, making serviced apartments an increasingly lucrative investment strategy.

Let’s explore the benefits and drawbacks of investing in serviced accommodation.

The Pros of Investing in Serviced Accommodation:

• Higher Rental Income:

One of the primary advantages of investing in serviced accommodation is the potential for higher rental income. By offering short-term stays, landlords can charge higher fees per night compared to traditional buy-to-let properties, potentially leading to increased profits.

• Higher Tenant Turnover:

With shorter stays, serviced accommodation enables landlords to avoid long-term issues with disruptive or unruly tenants. Guests come and go more frequently, reducing the chances of encountering prolonged rental problems.

• Flexibility:

Serviced accommodation provides greater flexibility for both landlords and guests. Guests can choose to stay for a few days or an extended period based on their needs and bookings, attracting a broader range of potential tenants.

• Easier Property Sale:

Selling serviced accommodation is typically quicker and easier compared to waiting for a tenant to finish a fixed-term tenancy in traditional buy-to-let properties. This allows for more fluidity in your investment strategy and the ability to adapt to market conditions effectively.

• Seasonal Rate Adjustments:

Landlords of serviced accommodations have the advantage of adjusting rental rates based on seasonal demands. If your area experiences high tourism during the summer, for example, you can increase rental rates to take advantage of the increased demand.

• Rapid Market Growth:

The serviced accommodation market is experiencing rapid growth, with platforms like Airbnb reporting significant profit increases. This upward trend is expected to continue, offering attractive opportunities for investors.

The Cons of Investing in Serviced Accommodation:

• Higher Costs:

Investing in serviced accommodation often involves higher costs compared to traditional buy-to-let properties. Furnishing the property and providing additional services like housekeeping and Wi-Fi can lead to increased expenses. It is crucial to factor in these initial costs when calculating the viability of the investment.

• Longer Void Periods:

Relying on tourism for income means there may be significant periods without tenants. It’s important to have a financial buffer in place to cover ongoing costs during these periods when the property is vacant.

• Potential for Damage:

Guests may book serviced accommodation for parties or other activities that could result in damage to furnishings and the property itself. Implementing regular maintenance routines and thorough screening of guests can mitigate this risk.

• Increased Marketing Costs:

Continually attracting new guests to maintain a steady flow of bookings may require higher marketing expenses as you continuously advertise the property online. Developing a well-thought-out marketing strategy is essential to attract potential guests effectively.

In addition to these considerations, managing serviced accommodation involves addressing unique logistical aspects, such as arranging remote key pickup/drop-off or personally meeting every guest. Efficient management is crucial to ensure a smooth operation.

Conclusion

By leveraging the rising popularity of short-term stays and providing hotel-like services, landlords can generate increased rental income. However, it is essential to carefully consider the potential downsides, such as higher costs and longer void periods.

Thorough market research, evaluation of demand in your area, and assessment of the financial viability are crucial before venturing into serviced accommodation investments.

With proper planning, effective management, and a sound understanding of market dynamics, serviced apartments can offer a lucrative and rewarding investment experience in the evolving property market.

By tapping into the growing demand for flexible and comfortable short-term stays, serviced accommodation can be a profitable venture with the right dedication and effort. It is an exciting sector that allows investors to capitalize on the increasing demand for alternative accommodation options – all it requires is diligent work and a strategic approach to the investment.