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Reliable returns

Released at: 07:21, 24/03/2014

Reliable returns

The serviced residence market is becoming more competitive as stakeholders recognise its potential and stability.

by Hoang Thu

InterContinental Hanoi Westlake recently decided to convert 66 hotel rooms into 25 serviced residences, in partnership with owners. Starting at 86 sq m, the 25 premium residences are one-, two- or three-bedrooms and feature large living areas, private balconies, high-end furnishings and the latest in modern facilities. A representative from InterContinental Hanoi Westlake said there has been tremendous growth and increased demand in the serviced residence segment. “With our newly-launched residences our long-stay guests now have an additional room type to choose from,” he said. Meanwhile, some builders have started to lease out their properties as serviced residences as it helps them to quickly recoup capital and existing serviced apartment projects are considering the expansion possibilities. The serviced residence market is becoming increasingly competitive, with both international and local providers recognising the potential and stability.

At Ascott, for example, the largest international serviced residence owner-operator in the country with more than 1,800 apartments in 12 properties, Mr Mark Chan, Ascott’s Country General Manager for Vietnam, said that their serviced residences are performing well and achieved a healthy average occupancy rate of more than 80 per cent in 2013 and the early months of this year. Average rentals have been stable over the last two or three years as well. “We will be opening more properties in Vietnam over the next few years,” he said. These include its first property in Hai Phong - Somerset Central TD Hai Phong City - which will open this year, its first in Danang - Somerset Danang Bay - set to open in 2015, and Somerset West Central Hanoi, which will open in 2016. “We will continue to look for opportunities to expand our presence in Vietnam and target to increase our portfolio in the country to 2,200 apartments by 2015,” he said.

In Hanoi, the occupancy rate in the serviced residence market last year was approximately 85 per cent, an increase of 3 percentage points year-on-year. The average monthly rent, however, was $27 per sq m, a 3 per cent decline year-on-year, according to figures from Savills. Grade A saw the best performance, with average rents at $30.5 per sq m per month and occupancy approximately 85 per cent. Grade B stock increased sharply, with some projects cutting rents to fill vacant units, putting average rents at only $18 per sq m per month for occupancy of 75 per cent. Grade C saw fierce competition in buy-to-let apartments, but average rents reached just $14 per sq m per month.

In the early months of this year demand for serviced apartments is expected to be higher than in the fourth quarter of 2013, with not much change in rents, because many expatriates have now returned from the Christmas holidays and economic expectations are brighter. “The involvement of five-star hotels in the business of serviced apartments will increase competition this year, especially in the Grade A segment,” said Ms Do Thi Thu Hang, Head of Research and Consultancy at Savills Hanoi. In order to maintain stable occupancy rates, Grade A serviced apartments will definitely need an appropriate pricing strategy and increased service quality. “Vietnam’s economy is expected to improve, and serviced apartment performance should be stable,” Ms Hang added. However, with limited future supply in 2014 and fierce competition in buy-to-let apartments, Hanoi’s serviced apartment market in 2014 may be unable to escape from supply pressure.

Overall, the performance of the serviced apartment sector has fared relatively well compared to other sectors in Hanoi, according to Mr Timothy Horton, General Manager of Cushman & Wakefield Vietnam. “With more flexible leasing terms and reasonable asking rents, serviced apartments should continue to be of interest to tenants,” he said. “The trend of converting condominium apartments into serviced apartments is expected to continue in the time to come.” Supply is therefore expected to increase in the short term, with forecasts of an additional supply of approximately 600 serviced apartments by the end of this year, of which 43 per cent will be located in Ba Dinh district. This will have the inevitable effect of reducing rental rates.  

In 2014 the flow of foreign direct investment (FDI) is expected to continue its upward trajectory and this will help to leverage demand in the serviced apartment market. “Performance in Ho Chi Minh City is expected to be stable in 2014,” Mr Nguyen Khanh Toan, Research Manager at Savills Ho Chi Minh City, said, adding that some five-star hotels have begun to attract mid- to long-term occupants. Serviced apartment projects still hold a number of competitive advantages compared to hotels, including convenient living conditions, product diversification and social infrastructure. Serviced apartments in District 2 and District 7 are still able to attract tenants, especially large families who require spacious units and close proximity to facilities like international schools, hospitals, restaurants, and retail/shopping outlets.

Most projects in Ho Chi Minh City’s CBD always achieve high occupancy due to their prime location and good facilities nearby. “Professional international operators could be the key factor that affect the performance of Grade A projects,” Mr Stephen Wyatt, Country Head of Jones Lang LaSalle Vietnam, explained. Different to other sectors, the future supply of serviced apartments is expected to see limited supply in 2014. As a result, average rents and occupancy are not expected to experience significant fluctuations over the next year. “The average rent is expected to be stable in CBD districts and fall outside of the CBD,” he said. Fully furnished, buy-to-let apartments are still the direct competitors of the serviced apartment sector, with lower rents. However, tenants who place priority on security and professional services will consider serviced apartments as their best option.

So the outlook for the serviced residence market in Vietnam appears bright. Figures from the Vietnam National Administration of Tourism show that international visitors to Vietnam in 2013 reached 7,572,352, representing 10.6 per cent growth. The tourism sector has set a target of welcoming 8 million foreign visitors this year, or 5 - 6 per cent higher than last year. The country’s large, young workforce and pro-business environment will continue to attract FDI. “These will, in turn, generate greater demand for serviced residences in Vietnam,” said Mr Chan. “We remain confident in the long-term growth of the country’s serviced apartment market.”

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  • InterContinental Hanoi Westlake

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