Why invest in serviced accommodation?

In recent years, serviced accommodation has become increasingly appealing for investors. A report in April 2024 commissioned by the UK’s Association of Serviced Apartment Providers, found that there are around 56,700 serviced apartments in the UK, with 28,500 of them managed under a brand. 

As a potentially lucrative investment, more property investors are adding serviced accommodation to their portfolios. In this article, we unpack the different types of serviced accommodation, the investment appeal and how clients are choosing finance them.

What is Serviced Accommodation?

Serviced accommodation is a type of fully furnished, self-contained property that offers hotel-style services and amenities included in the rental. Guests who may rent serviced accommodation include business travellers, tourists, contractors, and relocating professionals in the interim for more permanent property.

Depending on the amenities available, serviced accommodation can vary in cost and duration for which it is rented. Serviced apartments often include bedrooms and living rooms, fully equipped kitchens, private bathrooms and amenities like Wi-Fi, laundry facilities, and in some cases, housekeeping services.

Typically, serviced accommodation is located in central areas with good access to public transportation, shopping and dining options.

Research conducted by Knight Frank in 2022 found that the profitability of the serviced apartment sector outperformed the regional UK hotel market. With the popularity of serviced accommodation in recent years continuing to increase, this sector of the property market has been supported by the emergence of online booking platforms. For example Airbnb, which lists many serviced accommodation properties on its website.  

Types of Serviced Accommodation

There are three main types of serviced accommodation available to clients; serviced apartments, aparthotels and corporate housing.

• Serviced Apartments: Serviced apartments are best described as a property that blends the comforts of home with hotel-like services. Fully furnished, they provide daily conveniences, housekeeping, and other services within the fixed rental price.

• Aparthotels: Aparthotels are a modern type of serviced accommodation that bring together the conveniences of a hotel, with individual living units. They are typically located in purpose-built buildings and offer studios or small apartments.

• Corporate Housing: Corporate housing is a term typically used to describe a property rented by an organisation for business travellers, relocating employees, military personnel or individuals and families displaced by natural disasters.

These three types of serviced accommodation are all relatively similar. The most discerning factor is the length of time that can be rented for.

Why Invest in Serviced Accommodation?

The most attractive factor for investors exploring service accommodation is the potential for high rental income. The rents achievable from serviced accommodation tend to be much higher than they would be for letting similar accommodation on a long-term let. For example, a long-term rental priced at £950 PCM could potentially achieve £950 per week on a short-term serviced accommodation let.

Similarly, the rental yield can be far more attractive. A property let on a short-term basis should achieve a much higher rental income overall, but will cost the same to buy as a property let on a long-term let. For example:

Long-term buy-to-let yield:
£300,000 purchase price
Property let for 11 months of the year at £1,250 PCM, total £13,750 PA
Yield is 4.58%

Serviced accommodation yield:
£300,000 purchase
Property let for 250 nights of the year at £150 per night, a total of £37,500 PA
Yield is 12.5%

New technology is also making it easier than ever to find and manage serviced accommodation properties. Platforms such as Airbnb, Expedia and Booking.com have all been created in a similar style to online shopping platforms where users can ‘shop around’ for their preferred type of property based on location and rental length.

Financially, serviced accommodation may offer clients some tax efficient solutions however, it is essential to take professional tax advice before investing in serviced accommodation.

Serviced accommodation in London: The 90-Day Rule

If you are considering investing in London based accommodation, you’ll need to consider the 90-day rule. It refers to a regulation introduced by the Greater London Authority in 2015 and limits the amount of time that a property in London can be rented out. It deems short-term as 90 days maximum (in one go) per calendar year. The regulation was introduced to maintain the balance between residential and tourist stay in the Capital.

Good to know: The 90-day rule applies to the property, not the owner. This means that regardless of whether the property is owned by multiple people, the 90-day limit still applies to the property as a whole. Should property owners wish to rent out their properties for more than 90 days, permission from the local council must be obtained.

London’s 90-Day Rule may seem like an obstacle for property investors, but with the right strategies in place, it can be navigated effectively. One way to circumvent it is to explore investment opportunities outside of London. Many big cities, for example universities towns, will have a need for short-term accommodation for relatives visiting. Being located in a thriving city may also mean you can charge a premium rental price.

How to Invest in Serviced Accommodation

Typically, there are two ways you can invest in serviced accommodation. Either, purchase a new property and let it as serviced accommodation, or convert an existing buy-to-let.

When it comes to financing serviced accommodation, investors have several options to choose from:

• Serviced Accommodation Finance: This is a loan designed specifically for serviced accommodation properties. The lending criteria considers the unique aspects of the property, such as higher tenancy turnover and maintenance costs.

• Airbnb Finance: Looking to investing in a property specifically designed for Airbnb? This type of loan sees the lender consider the potential income from the Airbnb listing in their affordability assessments.
• Bridging Loans: These loans offer fast, flexible funding on a short-term basis but traditionally have higher interest rates when compared to long-term funding solutions.
• Commercial Property Loans: These are loans used to purchase or refinance commercial properties, including serviced accommodations.

As lenders view serviced apartments as a commercial endeavour, it’s important to discuss financing your investment with a professional adviser. At Wharf Financial, we are experts in helping clients source various types of funding for their serviced accommodation properties. We’ll take time to understand what you want to achieve from your investment, and partner with you to make it happen.

Contact our friendly team today and let’s get started.