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Redefining Hospitality Experience: The Rise of Service Apartments in Kenya


Since the advent of real estate in Kenya, the focus has been on putting up housing units for long term tenancy with most developers targeting middle and upper-income groups that have the potential of generating the highest returns. However, as time went by, this approach has become increasingly shaky as these market segments are now experiencing an oversupply coupled with declining demand due to falling incomes. As result, the returns are no longer lucrative as they were before when the pioneers built the first units. In some suburbs, the rental incomes have now become stagnant with the possibility of reducing further as the status quo persists.

In light of the above, investors in real estate are now looking for new fronts that promise to generate reasonable returns within a relatively short time. This has necessitated developers to explore new niche market and formulate differentiated products that can attract buyers. This exploration has since led to the emergence of serviced apartments as a unique offering for investors looking for a distinguished real estate venture.

But, what exactly is a serviced apartment?

A serviced apartment is a fully furnished apartment available for short-term or long-term stay, providing hotel-like amenities such as room service, housekeeping, a fitness centre, a laundry room, and a rec room. Most of them are equipped with full kitchens, Wi-Fi and in-apartment washers and dryers. In Kenya, the concept of serviced apartments is quickly gaining traction and redefining hospitality experience.

The hospitality industry has registered robust growth over the past 10 years and is currently the second foreign exchange earner for Kenya. This growth has been attributed to increased tourist footfall, improved security, increase in disposable incomes, and diversification of leisure options. These developments have resulted in increased investment in hospitality infrastructure with the government improving roads, communication, water and sanitation around tourist circuit areas. This, in turn, has encouraged developers to invest in putting hospitality-oriented properties like service apartments.

The serviced apartments are now staging a fierce competition against traditional hotels as the marketplace heats up with each garnering for the few customers. Thus far, the serviced apartments appears to be winning as they have reduced expenditures for tourists as well as business travellers making this the foremost comparative advantage against the hoteliers. For instance, serviced apartments in Nairobi continue to outperform short stay hotels from a year on year review of the respective occupancy rates. A three-year average occupancy of 72% for serviced apartments stands against a 52% average for the traditional hotels. Some hotels are extending their brands to serviced apartments to cope up with the increased competition. However, at this point in time, the concept is mainly concentrated mainly in urban centres like Nairobi and Mombasa thus giving hoteliers tourist hotspots situated in far-flung areas a headroom to breathe from the competition.

Granted, Nairobi is now the leading hub of serviced apartments. In recent years, Nairobi has witnessed serviced apartment maturity as an asset class with the presence of branded serviced apartments beginning to have an impact on the market. Global brands such as Best Western, Radisson and Movenpick have emerged as pioneers of the conversion of the serviced apartment scene to a more brand experience oriented offering. The increased development of mixed-use complexes has resulted in further growth of serviced apartment market share in Nairobi’s hospitality scene. Increasingly investors and developers alike are incorporating serviced apartment uses to their developments. Some of the pipeline MUD projects that shall incorporate a serviced apartment offering in Nairobi include; Global Trade Center (GTC) by AVIC, The Pinnacle of Africa and Montave.

A review of serviced apartment guest share reveals that currently, the largest number of serviced apartment users are largely business based. They are mostly attached to a corporate entity or are independent residents but are still attached on work commitments. There is an increase in serviced apartment popularity with private residents embracing extended stay options. The main reason for the trend is the clienteles' desire to enjoy hotel-style amenities and services.

According to VAAL Real Estate, Nairobi currently accommodates approximately 4,500 serviced apartment units. A review of the major extended stay nodes in Nairobi reveals that Westlands has the lion’s share of the supply with at approximately 37% of the total key count. The trend is attributed to the node’s status as a popular business hub and offers greater synergies for occupiers. Kilimani comes in second with a supply of 28%. Nodes such as the CBD and Upperhill lag behind in the space supply count with approximately 9% and 6% respectively despite having access to a corporate clientele base from the office users in the vicinity. The CBD is impacted significantly by congestion and infrastructure stagnation that render development and occupation alike a challenge.

Over the past 5 years, there has been a 49% increase in serviced apartment supply from approx. 2,320 units in 2013 to approximately 4,582 units in 2018. The growth signals developers’ response to relatively robust demand figures in the asset class. From a unit delivery perspective, the most popular extended stay unit is the 2-bedroom unit with a 42% space share in the market. The least popular option is the 3-bedroom option that holds a 10% space share count.

Gigiri is notably the most expensive node with a monthly average of KES. 248,000. This is largely attributed to the limited supply of serviced apartment developments in the area and the existence of significant barriers to entry in the market such as high costs of land. Westlands comes in second with an average monthly rate of KES. 223,000. The node is noted to be highly competitive but with a concurrent high demand for serviced apartment units. Nodes such as the CBD have seen a fall in the rates due to increased competition from other nodes. Increased congestion and stagnated infrastructure developments have also led to the reduced preference of CBD centred properties.

A future outlook on the region shows a growing preference for extended stay options following the growth of corporate use of the extended facilities and increased demand for a more corporate centred offering. We anticipate the delivery of premium, branded serviced apartments in the region with the entry of larger brands as well as the diversification of existing local hotel operators into the extended stay scene.

Sectional ownership of serviced residences is also expected to grow in the coming years. Proposed serviced residences shall operate under a fully owned and occupied or pooled operation model with the latter expected to become more popular with investors. Branding is also poised to be a driving factor within this segment as brand affiliation is expected to gain market control over the next few years. There is a growing need for economy grade serviced apartments offerings that offer a no-frills extended stay offering for on the go residents. The current supply and development pipeline of serviced apartment is focused on mid to upper scale accommodation options. The shift will be aimed at capturing the growing business travels from a regional and international perspective with clients requiring the basics at an affordable cost.

There is room for growth in this class as potential serviced apartment users, in both the private and public sectors continue to rely on traditional accommodation options for extended stay uses. An emerging trend within the local scene has been dual branding that has seen multiple developers pair extended stay units with a mix of select and full-service hotels. Despite the growth in popularity of the trend, the region is yet to see a fully branded.


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