COLLIERS THAILAND FORECASTS INCREASED SERVICED APARTMENT COMPETITION
Colliers International Thailand, a leading property consultancy company, released a report on the serviced apartment market in Bangkok. The report highlights the increasing competition in the serviced apartment and the need for owners and operators to position themselves well to succeed in this era of the expensive Thai Baht and increased supply.
Mr. Patima Jeerapaet, Managing Director of Colliers International Thailand, reported that many investors have serviced apartment projects underway. By 2011, there will be an investment cost of THB 27 billion of some 38 new serviced apartment projects are expected to open, adding some 6,580 units to total supply. “The total investment cost of these projects amounts to approximately THB 27 billion,” said Mr Patima, further suggesting that the lower cost of investment and operating expense have attracted many investors to invest in serviced apartments who might otherwise have built hotels.
Ms Risinee Sarikaputra, Research Department Manager, reported that there are currently about 10,685 units in 75 serviced apartment projects located in Bangkok with an average occupancy rate of 83.33% last year. The traditional core business of serviced apartment has been to serve the demand of expatriates residing in Bangkok for a period of more than one month.
However, the rate of increase in demand from this segment has lagged the increase in supply. Supply on a room-night basis increased by 167% year-on-year in 2007 as against room-night demand of only 9.3% year-on-year. Currently, therefore, core demand comprises two groups: new expatriate arrivals in Bangkok and short stay tourists and business travelers.
As a result of the increasing competition, many serviced apartments have shifted more to the short stay market – in some projects as much 65% of guests are now short stay. New regulations that impose a minimum length of stay on serviced apartments have led many to apply for hotel licenses, while some others continue to take short stay despite the new regulations.
The breakdown of new supply shows a strong concentration in the Sukhumvit area, with 3,659 new units, or 56% of the new supply coming online by 2011. CBD and Central Lumpini areas will together account for a further 1,029 units, or 15.6% of supply growth.
Apart from new supply, the upper end of the market has been hit by the appreciation in the value of the Baht. With accommodation budgets often fixed in US dollars terms, some long stay demand has found Grade A serviced apartments outside their budget and has shifted to Grade B apartments. The average occupancy rate of Grade A properties decreased by 2% per annum in 2007, while Grade B occupancy increased 1.2% over the same period. .
“The strength of the middle market has also begun to attract more international brand names,” said Ms Risinee, adding: “Citadines Apart’hotel opened their first of four new properties off Sukhumvit Road in Bangkok in 2007.” Citadines joins already established international brands with a presence in the Bangkok serviced apartment such as Oakwood, Marriott, Fraser, Ascott and Somerset.
“With many new hotels also opening in Bangkok over the new few years, the more successful serviced apartments are likely to be the ones that focus on the core longer-stay market and offer guests staying more than one month a product that meets their requirements, rather than those engaging in a price-cutting war with hotels,” concluded Mr Patima. “If the hotel market is too competitive, the hotels will reduce prices and this could have a knock-on effect on serviced apartments. Marketing strategies need to be well planned and well targeted at overcoming market threats in order to achieve sales targets this year.”
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