A very stable yield in tough times

Source : Today - 11 Sep 2008

Serviced apartment operators have fared well

It is an industry that went relatively unscathed through the Sars epidemic, despite the deserted airports and near-empty hotels.

Even during those times, serviced apartments in Singapore, which cater primarily to expatriates, were able to maintain an occupancy rate of more than 70 per cent.

While health scares may make merrymakers rethink their holiday plans but are not quite enough to halt firms’ day-to-day operations, it is an economic downturn that would hit serviced apartments worse. Up to now, the industry has fared well as Singapore’s status as a regional hub has developed.

Knight Frank research director Nicholas Mak says: “As of today they are doing well, but when the market slows down, nobody is immune … companies in Singapore could be cutting back their hiring of expatriates.”

But those in the industry are still confident of the prospects: Major players such as the Ascott Group and Frasers are looking to add to the inventory of 3,500 units, a figure which has remained roughly the same for the past seven years.

Ascott’s senior vice-president (operations), Mr Alfred Ong, says: “With the expected global economic downturn, we probably may see less travellers staying on a much longer term, a year or more.”

While the number of expatriates staying for at least a year - which currently makes up about 30 per cent of all guests in the apartments - Mr Ong expects an increase in those coming to Singapore on postings that last between three and six months.

This is why it is important for serviced apartments operators to capture a “good mix” of customers, Frasers’ chief operating officer Augustine Silva says.

That the major players have been expanding aggressively overseas in recent years should not obscure the growth potential of the Singapore market.

“If you look at our population of4 million people, 10 per cent are foreigners - and we only have about 3,500 serviced apartments in Singapore. Compare it to other cities - say Bangkok, with 10,000 serviced apartments for 700,000 foreigners,” says Mr Silva, who adds that - economic slowdown or not - there is still “a lot of room for growth” in the industry.

It is a keen eye for emerging markets that would make the difference in the months ahead - or what Mr Ong describes as “opportunistic growth” - which is what the Ascott Group’s latest development, Citadines Singapore Mount Sophia, hopes to do.

The development will be ready by the end of the year and Ascott will be trying to replicate the brand’s success in Europe, catering to the “young and trendy, single travellers”, but with an Asian twist.

Gone will be the Murphy beds, even though most of the units are, in Mr Ong’s words, “primarily smaller, studio-type units”. Asians are “not accustomed” to such beds, he added. (Murphy beds fold away when not in use.) Likewise, the vacuum cleaner - a necessary appliance in European serviced apartments - will also be absent. Instead, there will be more regular housekeeping.

Mr Ong says: “In Europe, guests need to clean up the rooms sometimes … but not in Asia … It’s like the clearing of food trays in foodcourts. I don’t think you will find this an issue in Europe. In Asia, somehow, it’s probably an expected service.”

And pandering to the Asian lifestyle is something that comes easily to a Singapore company, which is just as well. “Seven to 10 years ago, you’ll probably see a lot more Western executives posted overseas. We tend to see more Asians taking on key positions in the companies and posted to work here,” said Mr Silva.

Attesting to the rising popularity of serviced apartments among expatriates - even those on short-term stays -Mr Ong sees serviced apartments as a “destructive innovation” to the hotel trade.

There is an official rule in Singapore that serviced apartments should not be let out for less than a seven-day stay. While the operators “do not go out there and garner for short-stay business”, “we hear from our customers that a lot of business travellers, even though they are on short stays, would like to have the room fitted out like a home where they are given the choice to cook, to do their own laundry”, said Mr Ong.

As an indication of how lucrative the industry is, Mr Ong pointed to Ascott’s recent divestment in Somerset Orchard, where it stands to gain $43 million from a $100-million sale to OG. Ascott will continue to manage the development.

With average rates increasing significantly in the last three years,Mr Ong added: “The yields are certainly much more attractive. Most of our customers are long-term guests. Even in difficult times, serviced apartments give a very stable yield.”