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This article was first published 17 years ago  » Business » Why service apartments are in demand

Why service apartments are in demand

By Ravi Teja Sharma in New Delhi
November 18, 2006 13:48 IST
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With the economy booming and IT and ITeS sectors being in demand, a growing number of expat professionals are packing their bags to kickstart and oversee business operations in India. And this is exactly the fraternity that is pushing the growing demand for service apartments in India.

According to Manav Thadani, MD, HVS International-India, a consultancy firm, there is a good demand for well-run serviced apartments. The six major metros in India can easily absorb anywhere between 300-600 apartment units at the moment.

Interestingly, in these metros, 12-18 per cent of the hotel business is extended stay (he defines extended stay as anything which is two weeks or more).

The potential for this segment can be gauged by the fact that at least another 20 per cent stay in guest houses or private homes of companies. "This segment," says Thadani, "will come back, if there is good supply of serviced apartments in the market tomorrow."

The potential for this market to grow, though the base is pretty small right now, is extremely high, particularly due to the services sector and increased penetration in not just primary, but secondary and tertiary markets as well.

The sectors generating this demand are IT, ITes, BPO, KPO, bio-technology and to some extent manufacturing, particularly during new setups, consulting and financial services, infrastructure and telecom.

This demand is expected to rise with the projected growth path of the Indian economy, further penetration in other aspects of the services sector, setup of operations across secondary and tertiary cities and fast increasing domestic leisure travel, where people/families may prefer to rent apartments rather than stay at hotels, particularly in destinations such as Goa.

Another big segment that could start using serviced apartments will be visitors for medical tourism. There could be players who will build serviced apartments next to large hospitals to cater to that kind of demand.

According to research conducted by HVS, the growth of branded serviced apartments will also help rationalise prices currently being charged by hotels - a burning issue in India today. Luxury serviced apartments can be standalone or be a part of luxury, first-class and mid-market mixed-use hotel developments.

According to Thadani, "Serviced apartments usually have better occupancy rates and there is 10-12 per cent difference in the bottom line, compared to hotels." He adds, "The cost of operations too are lower. The nature of operations and design, of course, are totally different."

The supply of branded serviced apartments is very scanty across all markets, except maybe in Mumbai which at the moment has the Taj Wellington Mews, Lakeside Chalet Marriott Executive Apartments, the Grand Hyatt Residences and the Grand Residences attached to the InterContinental in Mumbai with a total of over 400 units. Then there is the Best Western The Emerald in Mumbai, which offers executive apartments in the three-star category.

Operating since 2001, the 177-unit Lakeside Chalet Marriott Executive Apartments has seen a steady increase in demand for long stay apartments, with average rates up by 30 per cent from 2005 and a strong 90 per cent average occupancy. In fact, they even had a guest stay for as long as five years.

HVS research says that Bangalore is set to get another 300-500 units from Hilton, Oakwood and Le Meridien. Rajesh Punjabi, VP-development in India for Hilton International, informs that Hilton will start its brand of Hilton Residences serviced apartments in Bangalore soon.

Paul Dominick, manager operations at the Brigade Group, says the company is working on three more serviced apartments under the HomeStead brand in Bangalore. This will add another 200 apartment units to the city in the upper mid-market category.

The NCR region is all set to get at least 500 units from Marriott Executive Apartments, Oakwood, Westin and Leela. The Marriott Executive Apartments will be in Gurgaon and are being built by Unitech. Gurgaon has around 30-40 unbranded units while Noida has the 44-unit Savoy Suites.

Kulbhushan Dhawan, general manager, Savoy Suites, says that his brand of serviced apartments has a year-round occupancy of 95-96 per cent with an average stay of three weeks.

"Ninety-eight per cent of our guests are expats and an amazing 50 per cent of them stay for over six months easily," says Dhawan.

Wadia Parkash, CEO of Ascot Hotels & Resorts that runs the Savoy Suites brand, says that they are planning to launch a 110-unit brand of Savoy Suites at Manesar. The company will also open serviced apartments in Noida's Sector 62 and Greater Noida, atop the Ansal Plaza mall there.

Mumbai as a market for serviced apartments is quite mature and it is set to get more units soon. Four Seasons will have an apartment block with its upcoming hotel in the city. Mid-market hotel player, Sarovar Hotels too is foraying into this segment in Mumbai.

Sarovar Hotels is planning a mid-market serviced apartment near the airport in Mumbai and one in Pune as well. Golden Tulip too is negotiating for converting an existing apartment complex to a serviced apartment in Pune.

Singapore-based serviced apartment major Ascott too is planning to expand its footprint in south India (particularly in Chennai, Hyderabad and Bangalore) by adding at least 1,000 units by 2010. It plans to have a total of 2,000 units across India, including Delhi and Mumbai.

The Ascott Group has signed a master development agreement with The Rattha Group to acquire and develop seven properties in the four southern states in India by 2010 with a total combined investment of $220 million. Their first serviced residence in India will be Somerset Greenways in Chennai with 210 units, targeted to open in the first half of 2008.

Another international serviced apartment major, Oakwood has at least six properties coming up by 2009. According to their website, their serviced apartment in Pune will open in 2006, Bangalore and Mumbai will open in 2007, while Gurgaon and Chennai will launch in 2009.

There are plans for Hyderabad as well. Besides these international players, Carlson Hotels, Asia Pacific, is also setting its sights on the segment in cities like Bangalore, Pune, Hyderabad and parts of the NCR.

Taj Hotels, which has the Taj Wellington Mews in Mumbai, has also been reported to be interested in developing more service apartments in cities like Delhi, Bangalore and Chennai, besides Mumbai.

DLF also has plans to enter the serviced apartments segment. Shakti Singh, director, DLF, informs that they are finalising plans for service apartments of different grades, both standalone and with other hotels.

"We are looking at locations where IT parks are coming up. At leisure destinations like Goa, there could be an apartment with a leisure hotel," he says. Similarly, Emaar-MGF too is looking at the possibility of setting up service apartments in various Indian cities.

Experts are of the view that the trend of serviced apartments is beginning to catch on in India.

While a growing number of players have already decided to step into this segment and are getting ready to launch their brand of serviced apartments, it remains to be seen whether clients will eventually bring their suitcases here or still check into a plush hotel suite.

Service Rates

Taj Wellington Mews, Mumbai -- $6,000-42,000 per month

Lakeside Chalet Marriott Executive Apartments, Mumbai -- $400-600 per night

Best Western The Emerald, Mumbai Rs 5,700-25,000 per night

HomeStead, Bangalore -- Rs 2,750-6,000 per night

Enkay Apartments, New Delhi -- Rs 40,000- 80,000 per month

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Ravi Teja Sharma in New Delhi
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