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Extended-stay guests are increasingly choosing home-style accommodations, allowing for the rise of serviced apartments.
By Nikki De Guzman
The accommodation needs of both business and leisure travellers have changed significantly over the years, and have created new opportunities for hospitality players in Singapore.
With the growing number of business travellers, the need for accommodation that helps guests balance work and leisure has become more pronounced in recent years, contributing to the rise of serviced apartments.
In this issue, we look at the accommodation business, which caters to extended-stay guests who require more than just a room to stay at, but also a home away from home.
More than a hotel room
A concept that originated in the United States, the idea of serviced apartments started when the need for alternative accommodation for long-stay guests grew in popularity. The concept provides the convenience of hotel accommodation with the look and feel of a home.
“The industry first came to existence due to the emergence of business travelers relocating to Singapore and hence looking for extended-stay instead of the conventional hotel accommodation,” said CBRE Hotels Executive Director Robert McIntosh.
McIntosh said the serviced apartment market was fueled by the strong growth of the Singapore economy over the years, the positioning of the country as an international business hub, and the globalisation of capital markets which has led to greater staff mobility.
In Singapore, serviced apartments tend to be strategically located in key business areas. This allows guests to make use of accommodation arrangements in more flexible terms that also offer modern conveniences and value-added services.
From an investor perspective, JLL Hotels & Hospitality Asia Pacific Executive Vice President, Tasos Kousloglou, said serviced apartments represent an attractive real estate investment class, “with relatively high-profit margins, stable cash flows, high space efficiency, conversion flexibility and lower development cost”.
Home away from home
While staying in a hotel may be a viable option for a few nights, some guests prefer an alternative accommodation they can call home for a longer period of stay.
Kousloglou said some guests prefer accommodations that come with personal comforts such as private outdoor areas, ample living space and a fully-equipped kitchen.
“The primary objective for a serviced apartment operator is to help business executives find the necessary work-life balance while they are away from home. Modern conveniences such as high-speed internet connection, iPod docking stations, up-to-date kitchen appliances and state-of-the-art home entertainment systems help create home-style living experience while overseas,” Kousloglou said.
To keep up with the competition, many operators here offer these in-room facilities to ensure that guests can enjoy the comforts of a home away from home. Others even go beyond the in-room features.
Pan Pacific Hotels Group, owner and manager of Pan Pacific Serviced Suites and PARKROYAL Serviced Suites, offer wellness facilities and residents’ lounge “to help long-staying guests feel at home”. Pan Pacific Serviced Suites Vice President Richard Tan said: “To nurture a sense of belonging, we organise events during festive periods (such as Mid-Autumn Festival) [among others], to encourage our guests to network and have fun.”
Another operator, The Ascott Limited, owner and manager of Ascott Residences, Citadines Apart’hotel, and Somerset Residences, offer a lifestyle programme called The Ascott lifestyle programme, which allows guests to experience cultural, gastronomical, local and wellness activities.
McIntosh said these additional features and services help serviced apartments fill the gap between leased residences and hotel rooms for short- to medium-term guests.
One-bedroom unit at Pan Pacific Serviced Suites Beach Road. (Source: Pan Pacific Hotels Group)
Performance numbers
In recent years, occupancy rates of serviced apartments have averaged at high levels. In Singapore’s highly-competitive market, serviced apartment occupancy rates have remained at levels above 75 percent.
According to JLL Hotels & Hospitality, the occupancy rates have registered consistently above this level over the past five years, “with full year 2015 levels achieving nearly 84 percent”. It is also said that while some industries have shown a reduction in bookings due to the decline in corporate travel budget, some have remained more stable.
But as the overall economy has weakened, it has affected not only sentiments about tourism, but also business travels.
Based on the data analysed by CBRE, revenue per available room (RevPAR) for both hotels and serviced residences are on a downward trend. But McIntosh noted that the RevPAR for serviced residences fell at a much slower pace compared to hotels, proving the resiliency of the asset class.
“Based on our sample of hotels and serviced apartments, in general, both average daily rates (ADRs) of serviced apartments and hotels were in a downward trend – both falling 2.5 percent on an annual basis from $265 in 2013 to $252 in 2015 for hotels, and from $258 in 2013 to $245 in 2015 for serviced apartments. Over the same period, serviced apartment ADRs were higher than that of hotels, which represents at least 1.6 percent premium.”
CBRE Hotels said “due to the worsening of the global economy, firms have been tightening their budgets, and short-term assignments ranging from a few weeks to six months are more common. This, as a result, has affected length of stay, and product offerings, with smaller units for single expats (rather than families) becoming more prevalent.”
JLL echoed this analysis saying that there were recent trends of shorter lengths of stay and a reduction in the number of advance bookings, sometimes on a month-on-month extension in comparison to a three- to six-month stay.
“As such, flexibility in accommodation offerings, coupled with competitive industry rates will continue to support the demand for serviced apartments,” Kousloglou said.
For operators, the good news is that one of the key strengths of the serviced apartment business model is being able to cater to both medium- and long-term stays to suit market conditions in order to achieve revenue maximisation.
For serviced apartment operators, extended stays guarantee future revenue streams. This is particularly useful during periods in which demand is subdued. This also means that serviced apartments tend to experience less seasonal volatility than other assets such as luxury hotels, allowing for relatively constant revenue streams.
Outlook
In terms of supply, McIntosh expects the market to remain dominated by local players. “Limited land available for serviced apartment developments, coupled with the complexity in converting residential developments to serviced apartments will hinder the growth of supply.”
Some industry experts, on the other hand, suggest that on the back of a falling demand from tourists, adding serviced apartments in hotels could be the way to go for hotel operators.
“With the ongoing rise in popularity of serviced apartments, hotel operators are also increasingly looking to include serviced apartments as part of their offerings as they try to capture the lucrative corporate segment,” JLL’s Kousloglou said.
One of the upcoming serviced apartment projects entering the market in the near term is Ascott Orchard Singapore, which is part of CapitaLand’s Cairnhill Nine integrated development. Ascott Orchard Singapore will add 220 serviced apartment units ranging from studio apartments to two-bedroom units, as well as penthouse units. In a statement, Ascott said the serviced apartments will have a hotel license, allowing for both long-term and short-term stays.
Looking ahead, industry experts said while local and global economies are gearing up for some challenging times going forward, not all is lost for the serviced apartment market.
“As companies look to cut back on longer-term assignments and permanent relocations, we see a strong demand for one-bedroom and studio apartments for employees engaged in transient assignments,” Kousloglou said.
“We predict that the performance of this sector in the medium- to long-term is likely to improve given Singapore’s strength as one of the key commercial and financial hubs in Asia Pacific.”
Beyond Singapore, the consultancy said the industry is expected to continue expanding in the coming months as Asia Pacific remains “in the driver seat of global growth”, leading to more overseas assignments and work projects in key regional cities.
Ascott Orchard Singapore
Cairnhill Road / Bideford Road
Operator: The Ascott Limited
Tenure: 99-year leasehold
Nearby Amenities: Shopping malls, restaurants, medical facilities
Nearest MRT Station: Somerset MRT
Scheduled Completion: 2017
Ascott Orchard Singapore is an upcoming 20-storey serviced apartment with 220 units. Unit types range from studios to two-bedroom apartments, as well as penthouse units.
Each unit will be fully-furnished and will come with a fully-equipped kitchen. The property will offer guests the use of a gymnasium, swimming pool, children’s pool and resident’s lounge. Services offered include a 24-hour reception and concierge, complimentary WiFi access and daily housekeeping.
The premium serviced residence will cater to expatriates, business travellers and tourists. It is directly linked to Paragon Shopping Centre via a covered link-bridge and is a close walk from the shopping malls and medical facilities along Orchard Road. The central business district is also easily accessible via the Somerset MRT station.
Ascott Orchard Singapore forms part of CapitaLand’s Cairnhill Nine integrated development, which also features a 30-storey condominium. It will have a hotel licence, offering both short- and long-term stays. It is scheduled to open in 2017.
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