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Regional Report - Asia
Ruth Shiraishi
Director of Space Design


In this edition of the Global Serviced Apartment Industry report we have invited industry experts in every region to provide an overview of their local market. Ruth Shiraishi, Director of Space Design Inc gives her perspective on the Asian serviced apartments sector.”

For the serviced apartment industry in Asia, 2010 was the beginning of revival following the long-term effects of the global financial crisis.”

Serviced apartments in the region accommodate mainly business and corporate requirements so despite the shock of the financial crisis to companies in general, client firms actually looked to reduce costs by increasing the amount of extended stay single business travellers as opposed to footing the bill for full family travel on ex-pat packages.

The number of corporations bringing over whole families with a parent in upper management became less, so serviced apartment operators catering to the upper end long term family-size user suffered increased competition and price pressure.

Studio and one bedroom apartment operators who cater for the singletravelling business person were surprised as operators of larger apartment facilities (for families etc), came down in price almost to the same level of the compact apartment operator.

For instance, from the end of 2009 to mid-2010, a business traveller could get a two bedroom fully furnished serviced apartment for about the same rate as a studio or one bedroom would have cost before the financial crisis hit.

Service providers in Hong Kong were able to maintain cash flow with guests from mainland China who wanted to keep long term furnished apartments in Hong Kong as a sign of prestige and clout.

Up and coming markets in Vietnam, the Philippines and Thailand benefitted from an influx of business users along with a limit in serviced apartment supply, so operators in those countries were able to benefit from multi-national corporations (MNCs) market entrance as part of an overall global cost-cutting strategy.

Restructuring

For Japan and Australia, the two most developed markets in the region, the financial crisis meant severe price pressure and more competition because of a shrinking potential client pool. Over the two years after the collapse, we have witnessed a severe restructuring in the market with some operators taking on more hospitality responsibility to function more like a hotel and other operators opting to take a long term furnished apartment approach with much less service support and lower price points based on stays of one or more years.

Operators in Japan that focused on studio and one bedroom executive serviced apartments or those who targeted the lower-end price ranges of 5000 yen to 8000 yen per day were able to bolster occupancy as high-end clients in spacious apartments had business travel budgets cut and thereby started using more economy class properties.

As a mid-size serviced apartment player and a strong growth economy, Korea was able to weather the storm because of less market players and a relatively steady flow of business users.

Rising Demand

Beginning in June of 2010, the number of business travellers began to increase and companies that were not as visible before the crisis started taking advantage of new business opportunities and demand for serviced apartments rose.

With the rise in demand, operators forced to slash rates by up to 40% found it easier to get by with discounts of 20% or less. However, compared to an average stay of 3 to 6 months pre-crisis, average stays went down to 1.5 to 2 months. Shorter average stays meant increased efforts to secure more clients via advertising campaigns and a stronger effort in terms of actual building operation to shrink the gap between visitors as much as possible with better housekeeping management.

Despite a slight downturn in occupancy in January and February of 2011 due to longer New Year’s holidays for the West and for China, the industry as a whole seems to be coming out of the downturn and operators that could not survive the crisis are no longer in the market. As business travel increases and the trend from expat family to extended stay single travel grows, serviced apartment operators are in a position of strength in almost every respect. However, price points remain about 15 to 20% lower than pre-crisis levels.

Overall, business travel is increasing across the region. In fact, since the number of long-term expats is going down (many international schools in the region are seeing a decrease in student populations) the opportunities for serviced apartment operators remain huge and relatively untapped.

Many MNCs and small to medium businesses are still unaware of the advantages of using serviced apartments and still have staff staying in hotels for one month or more. Also, many serviced apartment operators still try to attract short term visitors (less than one month) instead of focusing on the one to three month group.

In terms of daily rate, serviced apartment operators can offer lower rates than hotels so many operators attempt to attract very short term stays. Stays of under one month makes for much more expense in terms of client turnover, human resource expense because of frequent billing, check-in, check out and so on. Operators that stick to the over one month stay model seem to do better in protecting their bottom line.

Most serviced apartment operators without hotel licenses have realised that stays of less than one month should be left to the professional hotel operators. Focusing on stays of one month or more helps streamline cost and manpower. The operator functioning as an accommodation solution for a stay of more than one month can wholly focus on efficiency in terms of staff numbers and service level, while the same operator trying to function as an extended stay hotel would need to place much more emphasis and resources into staff numbers and hospitality level.