Saturday, 20 July 2013

Serviced apartments catching up

With no or limited entry barriers, several individuals, with some cash on hand, too joined the serviced apartment bandwagon, which was once considered to be a poorer cousin of large hotels.

The concept of serviced apartments, where guest stay for a longer period against regular hotels, has been around in India for close to a decade. With the ushering in of economic reforms resulting in large scale FDI into manufacturing sector in the mid-to-late 90s, as well as the subsequent IT boom spawned this concept as a new age business opportunity.

With no or limited entry barriers, several individuals, with some cash on hand, too joined the serviced apartment bandwagon, which was once considered to be a poorer cousin of large hotels. Taking a few apartments on lease and fitting and furnishing them was all one needed to foray into this emerging business segment.

As the flow of FDI increased and a wider base of MNCs entered India, they started demanding still better facilities and amenities on par with star-rated hotels. While smaller players found it difficult to cope with increased demands, this also led to the entry of global serviced apartment chains that normally manage such facilities.

“In India, the serviced residence industry is still in its nascent stages. There is a limited supply of international standard serviced residences. However, demand for serviced residences is expected to grow as FDI into India is increasing and the IT, auto and manufacturing industries continue to grow,” said Ajit Kaushik, area general manager – India, Ascott International Management.

The company claims to have pioneered the international-class serviced residence concept more than 28 years ago when it opened its first property in Singapore in 1984. Today, it has more than 30,000 apartment units across over 70 cities in 21 countries. In India, it has already opened its two properties with a total of 283 units in – Somerset Greenways Chennai (187 units) and Citadines Richmond Bangalore (96 units). Ascott has five other serviced residences with more than 1,100 apartment units under development in the country.

“Often, the executive traffic of many MNC and domestic companies is too erratic to justify a stand-alone company guesthouse. Also, the needs of such business occupants are very different from those of the usual hotel occupants. Service apartments, which invariably offer a suitable four-star service and facilitation level, are the natural choice,” says Sudeep Jain, executive vice-president – Jones Lang Lasalle Hotels (India).

According to him, serviced apartments offer business travellers fully-equipped kitchens with self-catering facilities and various bedroom choices, and are far more cost-effective than hotels in the vicinity of workplace hubs “Today, it works very well in the metros and larger tier-II cities, where starred hotels are notoriously overpriced and are the emerging trend in the corporate hospitality sector,” says Jain.

But T Raghunandana, managing director of Chennai-based Updater Services (UDS), the country’s one of the largest fully integrated facility management player, has a different view. “The concept of serviced apartments, as it existed in the past, has died because the players changed it to the hotel model. With large hotels themselves offering hefty discounts on their room rates, the scenario became much more hostile to independent players,” he pointed out.

According to him, over three to four years, the market was very good and the demand too was at its peak. “With hardly any entry barriers, anyone with about Rs 25 lakh could enter the serviced apartment business by taking a few apartments on lease and furnishing them. While this led to a glut in the market, the subsequent global recession only added to the trouble,” Raghunandana says.

Earlier, in a city like Chennai, the IT/ITeS companies entered into long term deals with service providers, who had to “make up the place as per the company’s specifications”. Sub­sequently, the companies only insisted on the specifications, but did not guarantee occupation and adopted “pay when used” model. “Already, the large companies had their own premises. And serviced apartment operators had to depend only on smaller companies. With them adopting the ‘pay when used’ model, there was yawning gap in the revenue flow and soon several independent operators either folded or moved out of business,” he said.

In the case of Kolkata, it is a different story, where the concept of serviced apartments started picking up three to four years ago and a number of leading realty players decided to join the bandwagon. Buoyant over the prospects of Rajarhat, the new happening destination in the eastern fringes of Kolkata, quite close to the international airport, many developers came up with service apartment projects in and around that area. And more so with a large number hotels, banks, IT offices, convention centres fast beginning to come up there.

Sureka Group decided to put up a full-scale service apartment project at Rajarhat. Bengal Peerless Housing Development Company decided to keep part of their upcoming projects in the new township reserved, which would eventually be converted into service apartments, mostly for the employees of the IT companies. Neither Rajarhat came up the way it had originally been envisaged, nor was the response to these service apartments so encouraging, that developers will replicate the model.

“With the passage of time one needs to innovate and move up on the value chain. Service apartments se­ems to be pass√©, studio apartment is in. Studio apartment is more than a service apartment and you can actually own it,” says Sanjay Jain, joint managing director, Siddha Group, that is developing “country’s first ‘New York-style one-room multi-facility studio apartments, called Xanadu”.

While the first movers in the segment may not have come with their second such project, Siddha Group is still bullish. “We aspire to take this novel concept beyond Bengal to the rest of India” Jain, said. Competition and a slowing economy seem to mock at serviced apartment providers in Pune too. “Just like the real estate business, service apartment business is cyclical in nature with the singular advantage of it being used for long stay between two weeks to six months in the city,” Hemant Naiknavare, director at Pune-based Naiknavare Developers. The company runs “Seasons”, a 50-service apartment property at posh Aundh area, close to bustling Hinjewadi IT Park and the Express Highway to Mumbai.

But the developer has put on sale its 27 one-two BHK service apartments and suites in Koregoan Park area, close to the airport as well as the railway station, due to lack of business. “With high competition specific to this locality, there’s no decent business and hence, we have decided to disband service apartments and sell them,” Naiknavare said.

Another builder Mon Vert Associates, who is completing construction of its 87 one BHK units to be launched as service apartments in December this year, said builders in the last two years were cautious to the concept of service apartments due to the sluggish market. “It all depends on location in the city and the brand operator, who will manage the property,” Jayant Kaneria, managing director at Mon Vert Associates. Since his property would be managed and operated by Starlit, a national brand, the company is not worried about lack of business.

On the other, the focus in Hyderabad is on offering high-end service apartments. For instance, luxury hotel, Park Hyatt, which started operations recently in Hyderabad, has 42 service apartments. According to Olesya Ostapenko Majid, director (rooms), the service apartment segment in Hyderabad has a lot of potential. What the city has seen so far is the initial concept. In days to come, the focus will be on offerings.

Hyatt has service apartments in three sizes 1BHK, 2BHK and 3BHK to suit guests coming solo or with families, with monthly rentals ranging from Rs 2,50,000 to Rs 4,50,000. The guests coming here have a varying stay at the service apartments- from one month to sometimes extending to a year, she said, adding that guests with longer stay will be able to get better prices.

They could prefer to use the restaurants, spa and other facilities of the hotel. They can also request a personal chef to suit their tastes even as they can buy the required groceries, which will be priced in the same way like in a super market, she said.

Before commissioning the service apartments at Hyatt in Hyderabad, her team conducted a survey to assess the market situation. “The prevalent understanding of service apartment was limited to provision of breakfast and housekeeping. What we offer is all five-star hotel standards,” she said adding that Hyatt offers a private parking to the guests.

According to Pochendar S, CEO, Lanco Hills, the mixed development project coming up in over 100 acre in Hyderabad, too has drawn up plans for 120 luxury service apartments in the project. This will be adjacent to the hotel coming up in the premises. He said the company has been studying the market conditions and for now is going slow with the serviced apartment projects. “The service apartments we are planning will be for the niche segment. They will spell luxury,” he said adding that service apartment segment has seen good growth in Hyderabad mainly due to the IT sector. However, there needs a further development of the IT segment that will fuel the demand for luxury serviced apartments.

On the whole, the serviced apartment concept, which is just about a decade old in the country, is still evolving. The potential is there. But, the players may have to tread a long path before they can have a sense of accomplishment.

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