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Whatever happened to serviced apartments?

Whatever happened to serviced apartments?

A few years ago, serviced apartments seemed all set to take off. They haven't. What went wrong?

When 32-year-old Shashi Bhushan Chidara took up an assignment with World Space in Bangalore two months ago after spending eight years in the US, he and his wife checked into Homestead's serviced apartments on Bangalore's Lavelle Road. It's a temporary home until they find a 'permanent' residence for the next 15 months that they plan to spend in the country.

Homestead is nice and comfortable-even luxurious, perhaps-but, as Chidara puts it, at Rs 4,200 per day, it is a bit steep even for a well-paid executive like him.

Taj Wellington Muse in Mumbai
Taj Wellington Muse
It’s not a hotel and doesn’t feel like home either: Taj Wellington Mews in Mumbai

To rewind, serviced apartments appeared like the perfect antidote to exorbitant hotel rooms. Until, of course, the serviced apartments became pricey themselves. Consider the Taj Wellington Mews in Mumbai where a two-bedroom unit could cost between Rs 6,50,000 and Rs 7,25,000 per month, a three-bedroom between Rs 7,85,000-8,25,000 per month and a four-bedroom, Rs 25,00,000 per month-all rates exclusive of the 10 per cent applicable tax.

Things at the Lakeside Chalet Marriott Executive Apartments in Powai are no better-depending on the length of stay and the type of apartment, you could end up coughing up $220-420 (Rs 9,020-17,220) per night. And that, of course, does not include any captive services you might avail of-laundry, telephone and restaurants.

So then, if you are paying the price of a five-star deluxe hotel, why not stay in a full-service hotel? Especially when, as Chidara says, you cannot make the slightest change in the décor of the apartment, which in any case intimidates his friends and relatives for its hotel-like ambience. "You certainly don't get the feeling that it's your home," he observes.

Lakeside Chalet Marriott
Lakeside Chalet Marriott Executive Apartments, Powai
The irony is, as a concept, there is nothing wrong with serviced apartments. According to an hvs International survey of the serviced apartment segment in India, they score over a matching luxury hotel due to their lower fixed costs, lower payroll and related expenses as well as lower administrative and operational expenses. "But-and it's a big but-the high land cost forces many developers with serviced apartment ambitions to seek instant gratification and sell them off as top-end apartments because, typically, for a serviced apartment, the returns start flowing in after two years," points out Shakti Singh, Director, DLF Hotel Holdings.

DLF, which has tied up with Hilton for setting up close to 70 hotels, has opted for serviced apartments co-located with its hotels to tap into the synergies of the hotel.

Singh also makes a distinction between serviced apartments and serviced residences. "Serviced apartments can be rented out for more than a day and could even be used to describe a hotel room with an attached kitchen, whereas in serviced residences, you sell the individual units," he explains.

Of course, one way to offset the high costs is for builders to opt for a guest-invest model, wherein an apartment is sold off to an individual who uses it for a certain time of the year and then gets back into the rental pool-the rent gets shared between the builder and the apartment owner, says Sameer Jasuja, In-charge, Assotech Cabana, which offers such a model.

Interestingly enough, the sector, which is still not quite as 'hot' as hotels, is witnessing a revival of sorts. At last count, there were 50 serviced apartment complexes being built across the country-each entailing a minimum investment of Rs 100 crore.

The serviced apartments are nice and comfortable, but come with a price tag that matches that of a five-star hotel.
While Sarovar Hotels is contemplating a management contract, Leela Hotels, which currently manages one in Gurgaon, is looking to get into the ownership side of things later this year.

ITC's Fortune Hotels is also close to finalising a management deal in Bangalore, where it expects to offer serviced apartments in the $80-150 (Rs 3,280-6,150) per night range.

The reason for this new-found interest could be the arrival of hundreds of expatriates over the past couple of years, forcing employers to hunt for an alternative to hotel accommodation. "Since these apartments are for long-staying guests, people who come to India for medical or healthcare purposes could also be a good market to tap," suggests Jasuja. Another target market, according to HVS International, is the increasing number of single woman travellers on a business trip to India.

Homestead serviced apartments
Homestead serviced apartments, Bangalore

But for that to happen, serviced apartments need to rationalise their tariffs-currently, they are 10-12 per cent cheaper than hotels but need to be 25-40 per cent cheaper to attract clients who might be drawn to discounted hotel rates. In fact, that is one of the main reasons why serviced apartments have not been able to garner a major share of long-staying guests.

If they try to move far too down the price range by limiting services, they find themselves pitted against operators of conventional limited-service hotels. Move up with more bells and whistles, then they go head-to-head with all-suite hotels or the high-end category of rooms in luxury hotels. And given a choice between limited and full service at comparative prices, it's a no-brainer as to where a guest would rather be.

Published on: Aug 31, 2007, 5:18 AM IST
Posted by: AtMigration, Aug 31, 2007, 5:18 AM IST