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 passé, 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.
