The real estate market offers a variety of investment opportunities, and one of the increasingly popular avenues is serviced accommodation. Combining elements of traditional property rentals and hospitality, serviced accommodations are fully furnished properties rented out on a short-term basis, often to business travellers or digital nomads. This hybrid investment model has gained traction due to its potential for high returns and flexibility. Corporate travellers will pay a premium for luxury fittings and a home-away-from-home feel, especially in central locations in major cities. Plus, as a property investor you won’t have the potential headaches of tenants missing rent payments or long-term tenants that result in rents not keeping up with inflation. Here’s a deep dive into investing in serviced accommodation and the key factors to consider.
What is Serviced Accommodation?
Serviced accommodation is any sort of property (though often apartments) equipped with furniture, amenities, and services akin to a hotel but offering the privacy and space of a home. They typically include utilities, Wi-Fi, housekeeping, and sometimes concierge services. Some come in apartment blocks that have on-site gyms and business facilities such as meeting rooms. The most common examples are city apartments, but houses can also be used as serviced accommodation for senior business people travelling or relocating temporarily with their family.
These properties cater to short-term renters, ranging from a week to a few weeks or months, depending on the location and demand. From the investor’s point of view they differ from traditional buy-to-let properties, which are usually leased on a long-term basis with no additional services provided.
Why Invest in Serviced Accommodation?
Here are some of the main reasons you might want to invest in serviced accommodation.
Higher Rental Yields
Short-term rentals can generate significantly higher income compared to long-term leases. By charging nightly or weekly rates, investors can capitalise on peak travel seasons or high-demand events in their area.
Flexibility in Usage
Investors have the option to use the property for personal purposes when it is not rented out to business travellers. This dual-purpose usage appeals to some people seeking both investment potential and lifestyle benefits.
Growing Demand
The rise of platforms like Airbnb and Booking.com has made it easier for business travellers to find serviced accommodation. Additionally, trends like remote work and bleisure (business + leisure) travel are fuelling demand for something more than just a hotel room. There are also specialist global accommodation agencies like Situ that exclusively cater for corporate travellers and luxury serviced properties.
Tax Benefits
In some regions, serviced accommodation investors may qualify for tax advantages, such as capital allowances on furniture and equipment, which are not available for traditional buy-to-let properties.
Diversification
Serviced accommodation provides an alternative to traditional investment portfolios, helping diversify income sources and mitigate risks.
Risks to Consider
While serviced accommodation can be lucrative, it’s not without risks that potential investors should be aware of. For instance, demand can vary significantly depending on location and time of year. Properties in tourist-heavy areas may see seasonal fluctuations with off-peak seasons having lower occupancy rates. Also consider that many cities and regions have introduced stricter regulations on short-term rentals to address housing shortages or concerns from local communities about the levels of visitors. These regulatory restrictions can affect profitability so research and comply with local laws governing short-term rentals, including licensing, health and safety requirements, and zoning restrictions.
More generally, managing serviced accommodation is more time-intensive than traditional rentals. Additional tasks include guest communication, cleaning, maintenance, and ensuring a steady stream of bookings. That means serviced apartments and houses will have higher operational costs because of the more frequent cleaning, and higher utility expenses, all of which can eat into profits. As this market becomes more popular, competition is increasing, which may require more investment in marketing and unique property features to stand out.
Steps to Successful Investment in Serviced Accommodation
As with any property purchase, location is critical. Areas with strong business activity, or limited hotel availability tend to perform well. Urban centres, near airports and public transport hubs often attract steady demand from corporate travellers. It is, therefore, essential to understand your target market to identify whether your property will appeal to tourists, business travellers, or long-term relocations. This will influence your pricing, marketing strategy, and property features.
Carefully calculate potential rental income against expenses, including mortgage payments, management fees, cleaning costs, utilities, and marketing. Aim for a robust profit margin after accounting for all costs. Listing your property on general booking platforms like Airbnb, or specialist corporate accommodation agencies like Situ, will increase visibility and helps secure bookings. They may also be able to help with property management if you lack time or expertise. That will, of course, incur additional costs, but can streamline operations and enhance guest experiences. Positive reviews are critical in this business so provide high-quality amenities, responsive customer service, and a seamless booking process to build a strong reputation.
Final thoughts
Serviced accommodation is an appealing investment option for those willing to embrace its operational challenges. With proper research, strategic planning, and a focus on customer experience, investors can achieve substantial returns while diversifying their property portfolio. However, it’s essential to remain flexible and adaptive to changing market conditions and regulations to sustain long-term profitability.
