Surging Quest leads strongly growing Australian serviced apartment market

Serviced apartment operator Quest has expanded by 28% in the past two years and is now the fastest growing player globally, according to a new report.

Quest’s expansion comes as the serviced apartment sector continues to expand in Australia and New Zealand with a 14.5% increase in supply since 2011.

“Australian serviced apartments are in high demand and short supply; a trend that shows no sign of slowing,” notes the UK-based Travel Intelligence Network, authors of the Global Serviced Apartments Industry Report 2013/14.

Quest is now second only to Mantra in terms of serviced apartment room numbers.

Mantra offers 13,600 rooms in 150 locations spread across Australia and New Zealand with Quest offering 6,786 rooms across 120 locations.


The other major operators in what is a very fragmented market are Oak Apartments and Mercure (owned by Accor), which both offer more than 4,000 serviced apartments and Harry Triguboff’s Meriton Group (2,674 apartments), which has plans to expand this side of its business.

The biggest operator globally is the Marriott group through its Residence Inn serviced apartment business, which operates more than 90,000 apartments in the US and Canada.

Quest chairman and founder Paul Constantinou attributes the growth in Australia to the country becoming de-centralised; “former regional towns are now regional cities, and the lack of accommodation in these areas is being addressed by serviced apartments rather than mainstream hotels".

“Although Australia has major international centres, the hotel chains tend to be concentrated in the main cities,” he says.

Constantinou says the sector is being driven by demand from the extended stay market, where demand has grown by 30% due to companies expanding and more consultants finding themselves on the road to service their customers. 

The report also quotes research by Atchison Consultants which forecasts the Australian serviced apartments sector to outperform the hotel sector over the next three years

Atchison Consultants forecasts investor returns of between 13% and 15% per annum compared to 10% and 11% for hotels and also estimates - on the back of a 10% rise in business travellers to Australian in 2011 - that business travellers account for 50% of guests who stay in serviced apartments, attracted by the lower costs compared to hotels.

A separate report by Jones Lang LaSalle (JLL) Hotels found that of the 3,712 hotel rooms under construction in September 2012, a third were serviced apartments - though JLL warns that serviced apartments will have to show a positive yield for at least three years to tempt back investors.

According to the global 2013 report, this is already happening with the sector is attracting new investors and is benefiting from increasing numbers of business travellers to Australia.

The report says serviced apartment rental rates in Australia and New Zealand are the most  expensive in the Asia Pacific region, ranging from $110 to $200 per night for a studio apartment to $180 to $275 for a two-bedroom apartment.

Quest is currently selling investments in its Quest Rockhampton development offering rental returns of 6.5%, increasing by 4% per annum.

In May, Quest listed its Sydney Olympic Park apartment hotel for sale seeking around $39 million as it looks to free up cash to fund the development of more than a dozen new serviced apartment projects and tap into growing investor demand for Australian hotels and serviced apartments, particurlarly from Asian investors.

Australia’s serviced apartment sector dates back to the 1970s, but the real growth spurt occurred in the build-up to the Sydney Olympics with the number of establishments with 15 rooms or more growing from 479 in 1998 to 973 by March 2011.

It ranked as seventh biggest apartment globally in 2011-12, up from 10 in an earlier survey.

The current report does disclose country rankings.

Larry Schlesinger

Larry Schlesinger

Larry Schlesinger was a property writer at Property Observer


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