According to the report by Jones Lang LaSalle’s Hotels & Hospitality team, 11 serviced apartment businesses, comprising 798 units opened in London in 2012 with another two following this year.
By the end of 2015 another five projects are expected to have opened in the capital, increasing accommodation supply by 4 per cent and more are expected subject to planning permission.
Adam Wilson, vice president of Jones Lang LaSalle's Hotels & Hospitality team, said with average occupancy rates within the sector usually at 85 per cent compared to 81 per cent within the hotel sector and corporate demand set to improve as well as the fact that serviced apartments have lower staff costs, there was a strong chance that growth would be strong for the sector over the next few years.
"The outlook for the sector is positive because of limited supply, good profitability and high yields," he said.
Wilson said although London had the most mature market compared to the rest of Europe the sector was still at an early stage so development had been the main way for investors and operators to gain a foothold in the market so far.
However, some recent transactions, such as the sale of the Grand Plaza Serviced Apartments in Bayswater for £98m in September with a yield of 5.5 per cent had shown that the sector had other opportunities for investors.
"Institutional and traditional residential investors have historically been the primary buyers of serviced apartments, but we are now witnessing specialist serviced apartment operators move into acquisition mode such as Ascott, Frazers and Cheval, which is driving pricing further," he added.
The report, which defines a serviced apartment as a 'commercially registered business with a specified entrance, dedicated reception or guest services team' which includes a small kitchen, bathroom and living area and provides regular housekeeping services, also found that there was optimism among serviced apartment operators with 74 per cent expecting business to increase in the next year.
The report follows the news that the Association of Serviced Accommodation Providers (ASAP) is launching a quality assurance programme next year to provide a benchmark for serviced apartment operators.