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Preferred living

Released at: 23:52, 05/02/2015

Preferred living

The boom in new entrants to the serviced residence market is likely to trigger tougher competition.

by Hoang Thu

At a function held in December, CapitaLand’s wholly-owned serviced residence business unit, The Ascott Limited, signed a deal under which it will manage the 222-unit Ascott Waterfront Saigon developed by the Canh Hung Hai Thanh Corporation, an affiliate of the M.I.K Corporation. Ascott Waterfront Saigon, in downtown Ho Chi Minh City, will be the first Ascott-branded serviced residence in Vietnam when it opens in 2016 and Ascott’s latest addition to its portfolio of 13 properties in the country.

Ascott remains optimistic about Vietnam’s long-term economic fundamentals and sees continuing potential for serviced residences in the country. Its existing Somerset serviced residences are performing well and achieving good occupancy levels in excess of 80 per cent on average despite an increasingly competitive landscape and a recovering economy.
Mr. Mark Chan, Ascott’s Country General Manager for Vietnam, believes it is timely to bring in the company’s premier brand as Vietnam embarks on its long awaited recovery. “We see exciting times ahead for Vietnam, with increases in FDI and the advent of the TPP and the AEC bringing in more business travelers and the need for quality accommodation to Ho Chi Minh City, Vietnam’s economic hub,” he said.

Other developers are also looking at serviced apartment operators as demand is ever increasing. According to Mr. Simon Dickie, Director of Agency at Savills Vietnam, the serviced apartment market will become more competitive in 2015 as all mixed-use developments planned are seriously considering adding serviced apartments to the mix.

Ho Chi Minh City’s District 1 is by far the most attractive for new entrants such as Frasers but they will also consider elsewhere, such as Districts 2 and 7. “The success of businesses in other Southeast Asian markets has increased demand for Ho Chi Minh City and Hanoi,” he said.

Tenants, especially single people, have a preference to lease in the CBD. This is why, recently, new entrants have tended to increase the proportion of their one- and two-bedroom offerings in order to meet demand, according to Mr. Jonathan Tizzard, National Head of Research & Valuation at Cushman & Wakefield Vietnam.

Looking ahead to 2015, demand for studio or one-bedroom apartments in prime locations with basic facilities and services and with professional management and rents below $1,500 a month will remain high given tenants’ tighter budgets.

Districts 2 and 7 attract families due to their larger unit types and concentration of international schools. District 2 is a desirable place for Western expatriates due to its river views, peaceful environment, and large international schools such as the Ho Chi Minh City International School and the British International School.

Meanwhile, Asian tenants prefer serviced apartments in District 7, reportedly due to the good “feng shui” and proximity to nearby Korean, Japanese and Taiwanese schools. “Tan Binh district is also considered another choice location for expats who work at industrial parks in the area and for its close proximity to Tan Son Nhat International Airport,” said Mr. Tizzard.
Vietnam’s tourism sector is improving every year and the country is experiencing high demand from tourists, especially those from the Asia Pacific region. “Tourists do consider the serviced apartment market but still have a preference for hotels, especially three- and four-star hotels,” said Mr. Dickie. “Corporate businesses who are expanding in Ho Chi Minh City are the main driver behind the growth of the serviced apartment market and we see this increasing year-on-year.”

In Hanoi, Ba Dinh district still led in market share (27 per cent) in 2014, followed by Tay Ho district then Tu Liem district, according to Cushman & Wakefield Vietnam figures. Demand for serviced apartments in Hanoi mainly came from expatriates who work for multinational companies (MNCs), non-government organizations (NGOs), embassies, international organizations, and international schools and universities, which have experienced substantial growth in recent years. Short-term lease serviced apartments are favored by those who came to Hanoi to be employed on short-term contracts of one year or less.

In recent years, there has been growing demand for serviced apartments in Hanoi’s western reaches, such as Cau Giay and Tu Liem districts, largely as a result of the constant decentralization trend in Hanoi’s office market, with companies gradually shifting away from prime CBD to non-CBD areas, including the west of the capital. In particular, demand in these areas has also come from expatriates (mainly Japanese and Korean) working in certain industrial parks in Hanoi, such as Thang Long and Noi Bai.
Villas and buy-to-let apartments continue to provide fierce competition for long-term requirements, while hotels compete for tenants on shorter stays. This forces providers to differentiate their business strategies to attract tenants.

At Sofitel Plaza Hanoi, for example, there are currently 56 serviced apartments, of which 20 newly-furnished apartments were renovated and converted from luxury category hotel rooms in the middle of 2013. “In 2014, Sofitel’s serviced apartments had full occupancy most of the time, for an average year-round occupancy of 98 per cent, and we expect similar this year,” Mr. Poujoulat Guy, General Manager of Sofitel Plaza Hanoi, told VET. “Our targeted customers are corporate executives and international diplomatic officers. Among the most popular of the 56 apartments are those with views of West Lake.”

In fact, it plans to increase its rental price by 15 per cent for a number of reasons, including recent conversions and modern furnishings of new apartments enhancing the capacity and quality of its serviced apartments. Thanks to its unique location close to city center with among the best views in town, as well as world-class services, Sofitel’s serviced apartments also gain more favor and longer commitments from its tenants, which at the same time increases leasing demand.

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