The Rise of Serviced Accommodations and Rent-to-Rent Properties

In recent years, the popularity of short-term rental properties, also known as serviced accommodations, has grown significantly. With the advent of online platforms such as Airbnb, HomeAway, and Booking.com, it has become easier than ever for property owners to monetise their homes or apartments. As a result, many investors are now turning to the rent-to-rent business model to take advantage of this trend.

What is a Serviced Accommodation?

A serviced accommodation is a fully furnished apartment or house that is rented out on a short-term basis. These properties come equipped with all the necessary amenities, such as WiFi, cable TV, fully equipped kitchens, and sometimes even housekeeping services. They are typically rented out for a few nights up to several months, making them an attractive alternative to traditional hotels for both tourists and business travellers.

Why are Serviced Accommodations Becoming Popular?

The rise of serviced accommodations can be attributed to several factors, including:

• Increased demand: The number of travellers looking for alternative accommodations is on the rise, and serviced accommodations offer a more personalised and affordable experience than traditional hotels.

• Flexible rental terms: Serviced accommodations offer more flexibility in terms of rental length, making them a popular choice for both short-term and long-term stays.

• Lower costs: Compared to traditional hotels, serviced accommodations are often more cost-effective, especially for longer stays.

• Higher occupancy rates: Serviced accommodations can have higher occupancy rates than traditional rentals, as they can be rented out on a nightly basis, rather than on a monthly or yearly basis.

• Increased profitability: Serviced accommodations can be more profitable than traditional rentals, as they can command higher rental rates due to their unique features and amenities.

The Rent-to-Rent Business Model

The rent-to-rent business model is a popular way for investors to enter the serviced accommodation market. This model involves renting a property from a landlord and then subletting it out to short-term tenants. The rent-to-rent operator takes on all the responsibilities of managing the property, including furnishing it, advertising it, and managing guest stays. In exchange for these services, the operator takes a percentage of the rental income.

Why is the Rent-to-Rent Business Model Attractive to Investors?

The rent-to-rent business model offers several benefits to investors, including:

1. Lower upfront costs: Rent-to-rent operators do not need to own the property they are renting out, which reduces their upfront costs.

2. Less risk: Since rent-to-rent operators are not responsible for the mortgage, property taxes, or other ongoing expenses, their risk is lower than that of traditional property investors.

3. Scalability: Rent-to-rent operators can quickly expand their business by renting out multiple properties and increasing their rental income.

4. Flexibility: Since serviced accommodations can be rented out on a nightly basis, rent-to-rent operators can adjust their rental rates and occupancy levels to maximise profitability.

5. Strong ROI: Serviced accommodations can generate higher rental income than traditional rentals, making them a potentially lucrative investment opportunity.

Industry Statistics:

• According to Grand View Research, the global serviced apartments market size was valued at $18.9 billion in 2019 and is expected to grow at a CAGR of 14.4% from 2020 to 2027.

• In a survey conducted by Booking.com, 43% of travellers said they would prefer to stay in a serviced apartment or vacation rental over a hotel.

• According to Airbnb, the number of guest arrivals in properties listed on the platform has increased from 47 million in 2015 to 200 million in 2019.

• In the UK, serviced accommodation bookings have increased by 67% between 2015 and 2019, according to data from ASAP.

• In the US, the number of units in professionally managed short-term rentals is expected to grow from 272,000 in 2017 to 1 million by 2025, representing a compound annual growth rate of 20%, according to a report by Boston Consulting Group.

This has led to the emergence of rent-to-rent businesses, where investors lease a property from a landlord and then sub-let it to short-term tenants, such as those using Airbnb, for a higher nightly rate.

One advantage of this business model is that it doesn't require a large upfront investment. Rent-to-rent operators typically pay landlords a fixed monthly rent and then earn a profit by charging more for short-term stays than they pay in rent.

In addition to the lower investment requirement, serviced accommodations offer several advantages to both renters and landlords:

• Flexibility: Unlike traditional leases, serviced accommodations allow renters to stay for as little or as long as they need, which is particularly attractive for those travelling for work or pleasure.

• Cost-effectiveness: For renters, serviced accommodations can be more cost-effective than hotels or traditional rentals, particularly for longer stays.

• Higher yields: For landlords, serviced accommodations can offer higher yields than traditional rentals, particularly in areas with high demand for short-term accommodation.

• Property management: Rent-to-rent operators typically take care of property management tasks, such as cleaning and maintenance, on behalf of landlords, which can be particularly attractive for those who live far away from their rental properties

Overall, the rise of serviced accommodations and the rent-to-rent business model is changing the way people think about short-term accommodation. As demand for flexibility and cost-effectiveness continues to grow, it's likely that this sector will only become more popular with both renters and investors.