Executive Summary
It is a known fact that the service apartment business is responding to a niche market where people are looking for short-term accommodation opportunities with a homely environment. The undersupply in short-term rental accommodations in the UK is fuelling this trend, and there are no signs of abating soon. Particularly, there has been an exponential increase in the number of serviced apartments globally, and the number is soon expected to reach 1 million units. The trend in the growth of serviced apartments is set to increase even further, especially as reports show that this market will soon outstrip the performance of the hotel industry, which is its biggest competitor. The serviced apartment market is also unique because demand has consistently outstripped supply, thereby sustaining occupancy levels, on a yearly basis. This statistic reveals why every year, operators in this market report significant increases in profitability.
Based on the potential that exists in the serviced apartment market, it is not surprising that different traditional hotels in the industry, such as the Intercontinental Group, Marriott, and Accor Hotels are also considering venturing into the space. There is also a growing trend where some of these establishments are considering locating the serviced apartments on the same grounds as the hotels. The main goal of doing so has been to reduce operational and developmental costs associated with this business. Although cost considerations are important in the industry, it is also essential to point out that the market is segmented. For example, short-term stays are expected to grow by more than one-fifth of all international stays, but long-term stays are set to decline by up to 52% in 2019 and beyond (The Apartment Service 2017, p. 18).
Nonetheless, despite the potential that exists in short-term accommodation opportunities, it still falls short of the supply pressure in many parts of the world. This paper is a business plan for a new enterprise, London Homes, which aims to fill this market gap. The enterprise will primarily be focused in the SW3 Postal Code area of London.
Company Description
London Homes will be a new company developed for purposes of renting and managing short-term rental properties within the SW3 Postal code area. The company will be owned and managed by an employee of The Royal Marsden, who has an interest in the hospitality and accommodation field. The market opportunity is centred on providing serviced apartments for sick patients within the SW3 Posatl Code area. The enterprise will be a private limited company because the proprietor wants to exercise full control over the business’s operations, at least within the first two years of operation. The company’s objectives and mission appear below.
The objectives of the proposed business would be as follows:
- Provide quality, affordable and serene apartments for rent
- Locating qualified tenants to rent apartments in the short-term
- Develop a reliable and stable stream of passive income
The mission statement is also as described below.
To provide clients with a reliable, quality and affordable homely environment
Industry Analysis
Table 1. Industry Analysis
Market Analysis
The current situation in the market is that many people who seek medical attention within the London area choose to stay at hotels because they have no other form of accommodation. Some of these accommodation centres are located far from the health centres, thereby posing a challenge to sick patients because they have to commute long distances to access health services. The market for London Homes will be in the SW3 Postal code area, which is home to a cancer centre (The Royal Marsden) and an internationally recognised health care facility (The Cromwell Hospital). The housing market for SW3 Post Code area is comprised of about 70% housing units which have two bedrooms, or less. Comparatively, 16% of the houses are three bedrooms, while 6% are four bedrooms (Post Code Area 2017, para.5). The proprietor of London Homes believes that the medical tourism market in London will continue to grow and there will be a steady stream of clients looking for accommodation opportunities within the SW3 postal code area. He also hopes that the business model chosen for the business will offset some of the risks associated with operating the enterprise. The goal is to have a diversified portfolio of the business’s operations. To maintain this quality service vision, the company’s staff will be trained to provide high customer services and foster proper client relations. The target market for the proposed business will be patients who visit the London area for medical tourism. Particularly, the business would target patients and their families who are seeking accommodation around hospitals. Mostly, sick people who come from selected developing countries in the Gulf region will form the bulk of the clients.
Marketing Plan
Marketing and sales strategy
Introduce the business by sending introductory letters to potential clients using brochures. Print out fliers, business cards and drop them off at different medical facilities within and outside the SW3 postal code area. Use colleagues, friends and family to spread the word about the proposed business (word of mouth communication). Place a classified advertisement in the local newspaper to popularise the business. Leverage on referral networks. Join relevant association and bodies that could further spread the word about the business. Advertise online through social media platforms and “Google ads.” Attend housing expos. Employ a direct marketing approach. Encourage direct word of mouth communication about the business from satisfied clients
Pricing strategy. The baseline price for monthly rent will range from £310 to £848. The pricing strategy is expected to align with current market trends to make sure that the business remains competitive. The available payment options include: direct bank transfers, online bank transfers, checks, and bank drafts.
Design and Development Plan
The most important strategy that would keep customers coming to London Homes is word of mouth marketing. Clients who refer others to the enterprise will be rewarded with redeemable points, which they could use to get discounted accommodation rates at a future date. High quality of service that will be synonymous to the proposed business’s operations would be able to create and sustain a strong demand for rental units.
Management Team and Company Structure
Chief executive officer. Providing overall business direction. Is the custodian of the business mission and vision (leading the implementation of the overall organisation’s direction for the realisation of the mission and goals). Meeting and hiring high profile clients and completing business deals. In charge of the daily running of the business. In charge of signing checks and other legal documents of the company and evaluates organisational success.
Company lawyer. Roles and responsibilities include: drawing up legal documents for the company, managing all company legal processes, informing company policy on legal matters, representing company in legal meetings, researches, anticipates and guides the company on legal issues and analyses legal documents on behalf of the company.
Accountant. Roles and responsibilities include: filing income tax returns, preparing the financial statements and reports relating to the company’s operations, providing the CEO with financial assessments and reports of the business, and presenting financial reports and risk analyses documents.
Overall Schedule
The overall schedule of the business plan will follow the following sequence:
- Checking for the availability of business name
- Incorporation of business
- Opening a corporate bank account
- Setting up online payment platforms
- Obtaining tax payer identification
- Application for business license and permit
- Purchase of business insurance
- Conducting a feasibility study
- Designing the company logo
- Calculating financial projections
- Generating part of the start-up capital
- Writing the business plan
- Leasing, renovating, cleaning and servicing the apartments
- Recruitment of employees
- Creating an official website for the company
- Creating an awareness of the business
- Arranging for the establishment of health, fire and safety procedures
- Establishing a business relationship with banks and financial institutions
Financial Plan
Although there are different sources of income, such as loans and angel investor funding for funding new businesses, the owner of London Homes intends to use a combination of personal savings and angel investor funds to sustain the business’s operations, at least for the first year. The incorporation of external help to sustain the business operations is part of the reason for the development of this business plan.
Sources of income. The proprietor of London Homes believes that the business would provide a steady source of income for future investments and business expansion. Already, the owner has rented out two apartments that are in the process of being furnished and will be listed on the market in less than two months. The owner also intends to employ a complex pricing strategy that would take into account the current market rate of listed apartments, the capitalisation rate, and the current market value of residential properties within the SW3 postal code area. In line with these areas of business development, the residential estate market is among the least risky types of business because it provides a necessary service in the market. The main source of income will be rental income from clients who are willing to stay in the available residences. Secondary income that would be associated with the business include, security deposit fees, bounced check fees, late charges, damage and cleaning charges, application fees, pet charges, and lease termination fees.
Sales forecast. The owner of London Homes will personally rent out properties to specific clients. Therefore, there would be no need for recruiting a sales agent. The proprietor also expects the number of serviced apartments rented out after the first year to increase as word spreads about the business. The business is scheduled to start operations in June 2018 and by December of the same year, the proprietor expects that all the available serviced apartments would have been rented out. At this point of the business life cycle, a breakeven would be reached. After recouping all the initial capital invested, future profits would be reinvested back into the business. During the business start-up phase, rental prices would be low to attract more clients. However, they will be gradually revised once a reliable market is established. Based on the revenue expected within the first year, the business owners expect to reinvest the same in renting out 14 more units within the SW3 Postal code area. Table 2 below highlights the projected sales numbers for the first five years.
Table 2. Sales Projections
The break-even point is expected to be reached by the end of 2018. After that, future profits will be reinvested back into the business.
The Company
London Homes will be a new company developed for purposes of renting and managing short-term rental properties within the SW3 Postal code area, which has a population of about 8,000 people (Post Code Area 2017, para. 5). An employee of The Royal Marsden health facility will personally supervise London Homes. Having had access to clients who are looking for befitting accommodations within the SW3 postal code area, he will be also be in a position to spread the word about the accommodation opportunities available. At the same time, since he works at the facility, he will be in a position to personally interact with the potential clients and get a feel of whether they would be suitable clients for the business, or not.
Industry Analysis
This industry analysis is conducted using the PESTLE analysis, which evaluates the political, economic, environmental, social, and technological forces influencing the business environment.
Political
The London housing market has remained a well-studied sector because of its importance to the city’s economy (Bloom Mobility 2016, p. 1). Many building companies within the region still hold on to huge tracts of land and undeveloped properties because they lack the necessary approvals and funding to commence building housing projects. The government has tried to address the problem by relaxing building laws through different programs such as the affordable homes scheme to enable developers to increase their investments in the construction of low-market housing (Wilson 2017, p. 7).
However, these efforts have not always translated to proper returns because there has been a slow growth in the construction of new housing units within the city. Furthermore, the need for housing within most metropolitan areas has not necessarily transformed into increased demand. As such, there is a disconnect between the two.
Economic
The UK housing market needs to supply at least 250,000 homes annually to meet the demand for the same (BPF 2015, p. 1). The mortgage market could have helped to address this need, but the industry’s poor performance and unstable levels of economic growth has made it difficult for the London housing market to grow, as it should. After the 2007/2008 real estate housing crisis, there was a change in the housing market trend because many people shifted from home ownership to renting (Jones 2017, para. 4).
This change in pattern led to an increased vibrancy of the rental property market and, by extension, the serviced apartment market as an offshoot of the same. Some property owners consider this sector as a resilient one because experts have noted that buying apartments, servicing them and renting them out often attracts clients in both good and bad times.
Technological Environment
A report by Relocate Global (2015, para. 2) shows that “Millenials” are quickly driving growth in the serviced market because they are technologically well informed. The development and growth of online residential accommodation websites, such as Airbnb have also revolutionised how people do business in the London real estate sector because they have opened a new market opportunity for customers to rent out unoccupied homes (Pickford 2016, para. 8). This development is hinged on the influence of the sharing economy on the UK real estate market (The Apartment Service 2017, p. 17).
The growth of these technology platforms means that customers now have more power in the market as they are not only confined to traditional accommodation opportunities such as hotels (Gagal Home 2017, para. 1). The success of the same sharing economy platforms comes as no surprise because Burns (2010, p. 78) says that businesses that innovate regularly are poised to help markets to achieve their full potential.
Legal
National and local bylaws affect operations in the real estate sector. Building and zoning regulations often combine to create a blend of policies and regulations that property owners and their tenants need to comply with (UK Building Advisory Regulations Committee 2015, para. 2).
Environmental
Some environmental factors that affect the growth and development of the serviced apartment industry include sustainability, waste management, and rules and regulations governing the implementation of green practices. These concepts influence how apartments are built and managed. The business impact of these environmental factors revolves around the prevention of pollution and environmental degradation.
Social Factors
Young people (mostly clients who are aged below 35 years) mostly dominate the serviced apartment business as the target market. They form a majority of the targeted population because they are more adventurous and tend to explore new accommodation opportunities relative to their older counterparts. Service standards applicable in the industry are also largely premised on the service standards adopted in the UK and not necessarily in other parts of the world. Since London is a global city, having to understand cultural diversity concepts is quickly becoming an important point to consider in the smooth running of businesses (JLL 2016, para. 1).
Market Analysis
Market Trend
The current situation in the market is that many people who seek medical attention within the London area choose to stay at hotels because they have no other form of accommodation. Some of these accommodation centres are located far from the health centres, thereby posing a challenge to sick patients because they have to commute long distances to access health services. The market for London Homes will be in the SW3 Post code area, which is home to a cancer centre (The Royal Marsden) and an internationally recognised healthcare facility (The Cromwell Hospital). The provision of accommodation facilities near these two healthcare centres will provide patients an easier access to their health care facilities and at the same time, provide doctors with an easier access to their patients.
The Competitive Advantage to the Business
Since the market for London’s serviced apartments is free and liberalised, it is difficult to quantify the competitive environment of the region comprehensively. However, the proprietor of London Homes believes that the biggest competition will come from single homeowners in the London market and large construction companies that are setting up new apartment properties to cash in on the increase in rental income.
The management of London Homes believes that there are few serviced apartments within this SW3 postal code area that have high quality services which meet the needs of modern-day customers. However, they believe that the proposed business will provide the high level of customer service lacking in the market.
Target Market
The target market for the proposed business will be patients who visit the London area for medical tourism. Particularly, the business would target patients and their families who are seeking accommodation around hospitals. Mostly, sick people who come from selected developing countries in the Gulf region will form the bulk of the clients. For example, those who come from Bahrain, Kuwait, Qatar and other Middle Eastern nations to seek medical attention in the UK will be sought. This demographic will form the bulk of the clients.
Marketing Plan
Marketing and Sales Strategy
The owner of London Homes believes that the success of the business in the highly competitive serviced apartment industry rests on the provision of excellent customer services. In line with this vision, the owner aims to provide an unparalleled living environment for his clients. To achieve these objectives, London Homes will employ the following marketing and sales strategies:
- Introduce the business by sending introductory letters to potential clients using brochures
- Print out fliers, business cards and drop them off at different medical facilities within and outside the SW3 postal code area
- Use colleagues, friends and family to spread the word about the proposed business (word of mouth communication)
- Place a classified advertisement in the local newspaper to popularise the business
- Leverage on referral networks
- Join relevant association and bodies that could further spread the word about the business
- Advertising online through social media platforms and Google ads
- Attend housing expos
- Employ a direct marketing approach
- Encourage direct word of mouth communication about the business from satisfied clients
Pricing Strategy
The pricing strategy of London Homes will be aligned with the current market pricing of serviced apartments in the SW3 Postal code area. The owner of the proposed business believes that he is competing with traditional hotels, which offer similar accommodation services in the industry. The goal is to make sure that the pricing strategy is within the same range as the competitors, but the quality offered is higher. Depending on the number of rooms and amenities offered at the apartments, the baseline price for monthly rent will range from £310 to £848. This pricing strategy is expected to align with current market trends to make sure that the business remains competitive. The available payment options are as follows
- Direct bank transfers
- Online bank transfers
- Checks
- Bank drafts
Design and Development Plan
The most important strategy that would keep customers coming to London Homes is word of mouth marketing. This strategy is instrumental because the proprietor anticipates that the clients would experience the joy of doing business with the company because of the pleasant interactions they will have with him.
Consequently, customer satisfaction is an important consideration for the business. Clients who refer others to the enterprise will also be rewarded with redeemable points, which they could use to get discounted accommodation rates at a future date. Nonetheless, the proprietors of the business believe that the high quality of service that will be synonymous to the proposed business’s operations would be able to create and sustain a strong demand for its units.
Management Team and Company Structure
Chief Executive Officer
Roles and Responsibilities include:
- Providing overall business direction
- Custodian of the business mission and vision (leading the implementation of the overall organisation’s direction for the realisation of the mission and goals)
- Meeting and hiring high profile clients and completing business deals
- In charge of the daily running of the business
- In charge of signing checks and other legal documents of the company
- Evaluating organisational success
Company Lawyer
Roles and Responsibilities include:
- Drawing up legal documents for the company
- Managing all company legal processes
- Informing company policy on legal matters
- Representing company in legal meetings
- Researches, anticipates and guides the company on legal issues
- Analyse legal documents on behalf of the company
Accountant
Roles and Responsibilities include
- Filing income tax returns
- Preparing the financial statements and reports relating to the company’s operations
- Provides the CEO with financial assessments and reports of the business
- Responsible for financial reporting and risk analysis
Overall Schedule
The overall schedule of the business plan will follow the following sequence
- Checking for the availability of business name
- Incorporation of business
- Opening a corporate bank account
- Setting up online payment platforms
- Obtaining tax payer identification
- Application for business license and permit
- Purchase of business insurance
- Conducting a feasibility study
- Designing the company logo
- Calculating financial projections
- Generating part of the start-up capital
- Writing the business plan
- Leasing, renovating, cleaning and servicing the apartments
- Recruitment of employees
- Creating an official website for the company
- Creating an awareness of the business
- Arranging for the establishment of health, fire and safety procedures
- Establishing a business relationship with banks and financial institutions
Financial Plan
Although Brown et al. (2005, p. 98) say there are different sources of income, such as loans and angel investor funding, for starting a business, the owner of London Homes intends to use a combination of personal savings and angel investor funds to sustain the business’s operations at least for the first year. The incorporation of external help to sustain the business operations is part of the reason for the development of this business plan.
Sources of Income
The Investor (2016, para. 5) says the residential estate market is among the least risky types of businesses. The main source of income will be rental income from clients who are willing to stay in the available residences. Secondary income that would be associated with the business include, security deposit fees, bounced check fees, late charges, damage and cleaning charges, application fees, pet charges, and lease termination fees.
Sales Forecast
The business is scheduled to start operations in June 2018 and by December of the same year, the proprietor expects that all the available serviced apartments would have been rented out. This view stems from a report by the Association of Serviced Apartment Providers (ASAP), which shows that service apartments in London often have an occupancy rate of about 77.8% at any given time (Chetwynd 2014, para. 1). Table 3 below highlights the projected sales numbers for the first five years.
Table 3. Sales Projections
Reference List
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Bloom Mobility 2016, Key trends in the global serviced accommodation sector. Web.
BPF 2015, Build to rent. Web.
Brown, R, Barrow, C, Molian, D & Burke, G 2005, Enterprise development: the challenges of starting, growing and selling businesses, Cengage Learning EMEA, London.
Burns, P 2010, Entrepreneurship & small business, 3rd edn, Palgrave Macmillan, London.
Chetwynd, C 2014, The growth of serviced apartments. Web.
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Wilson, W 2017, Stimulating housing supply – government initiatives (England). Web.