New serviced homes brand for Frasers Hospitality soon

Source : Business Times - 30 Oct 2008

CEO says business actually picks up as MNCs look for more flexible staff housing

WHEN the going gets tough, tough hospitality operators open more rooms.

Frasers Hospitality CEO Choe Peng Sum says that it is looking to start a new serviced residence brand and will announce this soon. This despite his view that the downturn in the global economy is likely to be protracted.

Mr Choe, who was speaking at the opening of the Fraser Suites Top Glory in Shanghai, said that while he did not want to sound ‘contrarian’ in times of a slowing economy, business actually picks up for serviced residences because MNCs start to look for more flexible housing packages for their staff.

Already, he says that Frasers Hospitality has seen its long term stay business in Singapore (averaging about six months) increase from about 50 per cent previously to about 65 per cent in 2008 to date.

Highlighting that serviced residences were full during the financial crisis of 1997 and later during Sars, he added: ‘They were pulling their staff out of bungalows and condominiums and booking them into serviced apartments for three months before deciding what to do.’

Mr Choe did not reveal details of its new brand but said that there is a growing market for hip but functional serviced residences. ‘Road warriors don’t need that fancy stuff,’ he added.

When the brand is launched sometime next year, rooms are expected to be smaller. ‘These businessmen just want fast broadband and a place to sleep,’ said Mr Choe, citing Express by Holiday Inn as a close equivalent.

Apart from reaching out to a broader market, the slowing economy has other knock-on effects for Frasers Hospitality too with parent Frasers Centrepoint considering turning unsold properties such as Martin Place Residences into highend serviced apartments, a strategy also employed during previous downturns. ‘We are still exploring this,’ he said.

As at September, Frasers Centrepoint was reported to have launched and sold about 30 units at its 302-unit Martin Place Residences, with apartments going for about $1,800 psf on average. However, the property market has since largely stalled.

Turning condos into serviced residences is something that Mr Choe has some experience with.

He joined Frasers Centrepoint to set up its service residence arm in the late 1990s. At the time, the company had development sites at River Valley, Robertson Quay and Alexandra Road. With property prices being what they were in 1998, however, the first two sites eventually contributed the seed properties for Frasers Hospitality.

Now, with the property market again in the doldrums, Mr Choe expects that more developers may again turn condominiums into serviced residences.

Apart from Frasers Centrepoint, most of the big players including CapitaLand, City Developments, Keppel Land and Far East Organization all have hospitality arms. All also have unsold apartments. Whether they choose to convert them will depend on whether they see returns from serviced residences out-weighing holding costs.

Trading in condos for serviced residences is already happening, at least in China with Fraser Suites Top Glory, which Frasers Hospitality manages but does not own.

The 317-unit Shanghai property in Lujiazui, owned by China conglomerate COFCO, was initially slated to be sold as high-end condominiums. However, when property prices began to soften, it was converted into a five-star serviced residence. But as Mr Choe notes, ‘in five or ten years, this could change again’.