Long Term Demand Driving Serviced Apartment Sector in Aberdeen

A serviced apartment in Aberdeen is proving to be a strong property investment option for those looking to enter the hospitality sector, with demand for long-term accommodation driven by the city's business tourism...

A serviced apartment in Aberdeen is proving to be a strong property investment option for those looking to enter the hospitality sector, with demand for long-term accommodation driven by the city's business tourism. According to Stephen Gow, chair of the Aberdeen City and Shire Hotels Association, serviced apartments are currently bucking the trend for sporadic growth in the hotel market and the slowing apart-hotel sector nationwide.

A report by PricewaterhouseCoopers revealed that Aberdeen's hotel market is one of the only regional areas to enjoy growth during September, while occupancy is expected to stand at 68 per cent in 2013 for all other areas outside of London. Although this is only a one percentage point decline from 2012 levels, the sector could struggle post-Olympics and Jubilee. The landscape doesn't appear much improved for serviced apartments either, with Savills noting there are just 1.2 units for every 1,000 business visitors in London. However, Aberdeen has been able to break away from the pack, distinguishing itself as a city with unique potential.

The thrust of sector demand in Aberdeen does not come from vacation tourists, although the Marriot is due to open the Courtyard hotel in April 2013 and a potential 150 to 200 room development in Kingswell is set for 2014. "The city still has strong mid-week demand from the business market but outside the city centre occupancy is challenging over the three-day market," Mr Gow explained. "Serviced apartments have grown strongly over the last five years on the back of long-stay demand."

Serviced apartment owners in Aberdeen are enjoying much prosperity as a result of the city's thriving energy market, which has blossomed over the last two years. Since 2010, theprice of a barrel of Brent crude oil has remained consistent and the North Sea has been the recipient of tax breaks, encouraging fuel companies to exploit the area. Lewis Anderson, from Scottish Enterprise's infrastructure team, explained: "Occupier demand remains strong and as a result rents are at an all time high with the highest prime rents outside the south-east of England being achieved.

"Any speculative development in the city centre would likely be rewarded with high demand from numerous blue chip covenants that are currently unable to procure existing stock. The out-of-town market will continue to thrive, with both pre-lets and speculative schemes absorbing some of the take-up from occupiers not requiring a city centre location."

With Scottish Enterprise hoping to open further sites in and around Aberdeen in the future, investment opportunities in the serviced apartment sector seem numerous. Already the energy group is advancing a joint venture with Buccleuch Property to create the Aberdeen Energy and Innovation Parks, which will bring yet more business tourists to the city.

These favourable conditions are helping Aberdeen outperform the rest of the country in terms of industry, but serviced apartment investors are warned that competition for property will be fierce, with grade-A stock scarce in the city centre. While this allows individuals to demand high rents, it creates an environment in which prospective owners must act quickly.

Ms Gow stated: "The market is strongly influenced by Aberdeen's position as an energy city with strong training, research and head quarter's operations based locally. Visit Aberdeen - the city's dedicated destination organisation - has recently been formed to continue to develop the city as a leading business and leisure tourism destination."

However, the city is still unlocking other aspects of its tourism potential and luxury hotel investment is also emerging as a hot contender for property investment throughout Scotland. Recent figures have shown that five Scottish cities have ranked in the top ten European cities with the highest hotel occupancy rates. Aberdeen itself has taken the coveted tenth spot, but with money being pumped into the city by industry, it could see itself moving higher up the ranks.

- Thursday 15 November 2012

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