With streamlined operations and high GOP conversion rates, serviced apartments can be an attractive asset class for institutional and individual investors alike.
Both the product and the terminology are flexible, noted William Tonnard, founder of Ando Living: “Extended stay, apart hotel, alternative living - it’s a grey area.”
In Saudi Arabia, the term ‘serviced apartment’ does not have positive connotations, and in the UAE, it is more common to find the description ‘hotel apartment’ in two categories: standard and deluxe, he added.
The downside to this lack of clarity is that the serviced apartment sector does not have a well-established or standardised star or chain scale rating system in the same way as the hotel industry.
This means brand operators and stakeholders need to work hard to communicate the specific benefits and characteristics of their products and services.
Daniel Johansson, director of development and acquisitions, Cheval Collection, said: “We are luxury serviced apartments and it’s important for us to get that message across. None of our apartments are for sale to individuals. Guests receive hotel services. We employ a general manager, receptionists and maintenance workers just like a hotel.”
Asset light or asset heavy?
Traditionally, serviced apartment operators have moved towards an asset-light model. Johansson said: “We started as owner operators 45 years ago and grew a property company of serviced apartments, offices, hotels and retail. Then we had a restructure to create an opco/propco split.”
“Now, Cheval Collection is asset light and has been growing via management agreements for more than five years. We can be sensitive to what is important for the owners and we know where we need to flex on the management agreements.”
Cheval Collection operates around 1,000 apartments in three cities: London, Edinburgh and Dubai.
In contrast, Edgar Suites started out asset light in 2016, and then started to buy its own real estate in 2022, backed by a €104m investment from its main shareholder BC Partners Real Estate.
Xavier O’Quin, CEO of Edgar Suites, said: “We shifted from an asset light model to an asset heavy model because it was a way to change the valuation of the company. We have a strong balance sheet and investors like us because we are less of a risk than others.”
Tonnard at Ando Living added: “We can go fixed lease or operating contract, but as developers we have a different approach and we sell individual apartment units. Last year we did €30m in sales to individual investors who are basically trusting in our brand and the real estate. That allows us to reduce the rent we pay.”
Ando Living currently has apartments for sale in Portugal and Turkey. When not occupied by the owners, the apartments are advertised to generate up to 6% yield revenue via a managed rental service.
Dave Murray, senior director, CBRE, asked how serviced apartments compete with traditional hotels.
Tonnard said: “As developers, you can imagine it’s a problem we encounter every day to see if our model will be more profitable than an alternative. We build cheaper than a hotel per square metre, and when you are in a prime city centre, the hotel usually wants the ground floor whereas we want to rent that out to F&B and retail, which makes it more interesting and allows for diversity of revenue for the owner.”
Johansson added that the Cheval Collection prefers to outsource F&B: “We are not the experts, so we like to find the perfect F&B brand for the location and sign a lease or management agreement. It de-risks things for the owner and operator. If we did it ourselves, we’d have a lot of extra staff expenses on the P&L.”
GOP comparisons
In addition to traditional commercial buildings, Ando Living also has a strategy of acquiring several smaller properties in neighbourhood clusters that are walking distance to a main clubhouse that provides hotel-like services.
“The aim is to go below the radar of traditional hotel brands and we can reach GOP margins of 65 to 70 percent with this scattered model concept,” claimed Tonnard.
This compares very favourably with a general benchmark of 35 to 45 percent GOP for luxury hotels; 25 to 35 percent for midscale; and 20 to 30 percent for economy hotels.
Edgar Suites has €500m of real estate assets under management in 11 French cities (1,400 apartments in operation or under construction). Its apartments are advertised as 50 square metres compared to the average of 15 sq m for a Parisian hotel room.
O’Quin said the company is looking for new builds or conversions of existing hotels or office buildings with a surface area of 600 to 5,000 square metres.
On the subject of achieving comparatively high GOP margins, Dino Karic, CEO and co-founder of FLOK, said: “Technology is a crucial part of it. A simple business model that optimises where the burdens are: the pre-check in process, an onsite experience that delivers value for the guest. We are operating with less stuff, delivering value through digital models and convenience for the guests.”
FLOK operates in eight European cities and in Costa Rica. The company uses proprietary software for transparent reporting and streamlined operations.
All quotes taken from the ‘Serviced apartments spotlight: what investors need to know’ panel at IHIF EMEA 2025