Savills’ most recent UK serviced apartment report shows that in the current economic climate developers are planning serviced apartments as a viable alternative to hotels and residential.

Serviced apartments provide short-term income on unsold stock and are a better alternative in the current economic climate, the report said.

Marie Hickey, associate director at Savills, said: ‘A standard management contract could provide a provincial developer with an annual income, before management fees, in the region of £15,000 on a 1 bed flat (based on a nightly rate of £85 and 80% occupancy).

'Grosvenor, for example, has already capitalised on this by entering into a lease agreement with Bridgestreet on 78 units at their Liverpool One scheme.

According to the research, visits of more than three months over 2008 were still in line with the five year average of 30,000 visits.

Philip Johnston, head of Savills hotel team, said: ‘There is no question that this year and the next are going to be tough operationally. However, whilst we don’t want to indulge in blind optimism, there is an argument to be made that serviced apartments can achieve average occupancy levels above the local hotel market. This combined with the general flexibility of serviced apartment inventories, should help maximise occupancy levels allowing operators to weather the storm.’

Adrian Archer, director in hotel valuations at Savills, said: ‘Because serviced apartments are valued against cash flow as opposed to residential values (which fell 15% over 2008 in the UK), we suspect should help insulate values.’

Savills research puts the total number of serviced apartment units in the development pipeline at 3,400. Combined with existing units this will bring the total supply in the UK to over 10,500 units. The bulk of these are in London with over 2,000 units.