Serviced Apartment Expansion Summit 2013, China Review

Piers Brown By Piers Brown
Uploaded 25 November 2013

Day One:

Travelling to the conference, I was looking forward to discovering more about this burgeoning sector and whether the Asian serviced apartment and extended stay sector was experiencing similar challenges and successes to the European marketplace highlighted at the International Serviced Apartment Summit incorporating Extended Stay held earlier in the year.

The conference was attended by around 150 hotel and serviced apartment investors, developers and operators including representatives from Longfor Group (China's 2nd largest real estate developer),Yanlord Land Group, Powerlong Real Estate Holdings,Frasers Hospitality, Oakwood Worldwide, The Ascott Group, Lanson Place, Kempinksi, IHG and Marriott Hotel Groups.

James MacDonald, head of Savills Research, China, started his opening keynote exploring the current and future demand for serviced apartments in China, explaining how there is a very positive outlook for steady and successful growth in the sector, particularly as 2nd and 3rd tier cities mature and the need for companies to do business in these regions grows.

Next, James Costa, general manager, Fraser Suites Top Glory, Shanghai, moderated a panel discussion on future serviced apartment distribution channels with panellists: Neil Harvey, director, Savills Residence; Joanna Tan, founder, Joanna Real Estate and Martin Fluck, director of operations for North Asia, Oakwood. All panelists agreed the need to focus on the true DNA of your product type and not to deviate from the temptation of trying to be 'everything to everybody' in the pursuit of additional REVPAR growth. They agreed the market still suffered from a lack of consumer awareness, particularly from a leisure traveller perspective. Close relationships with Chinese relocation agents is critical and OTAs (online travel agents) can drive additional serviced apartment sales but it's essential to factor in the commission cost v reward, and to consider whether the incremental business is going to be profitable in both the short and long term.

Next up was Liu Huan, director, hotel development, China, Marriott International, and Murphy Zhu, senior director, development, IHG, Greater China, discussing the role the Chinese serviced apartment and extended stay sector plays within a worldwide branded hotel group, moderated by Shaun Brodie, associate ddirector, research, DTZ.

Huan advised the importance of differentiating your serviced apartment offering and emphasized how one must be aware of the differing product requirements when compared to a hotel operation, and the differences in legal and licensing documentation. Zhu briefly outlined IHG's commitment to the growth of the Chinese hotel market with around 200 hotel's operating already and a strong pipeline of another 180 to open over the next few years. "We don't have a serviced apartment brand in China at the moment, but our Staybridge Suites extended stay brand is very active and continues to grow around the world" he said. Implying to the audience that it's simply a matter of time before Staybridge Suites has a presence in the Chinese extended stay market. "Our closest extended stay product in China at the moment is the Holiday Inn Changbaishan Suites which is doing very well," he added.

Huan stated that from a Marriott perspective, she's finding more hotel developers taking a closer look at the serviced apartment sector, and how a serviced apartment development would 'sit' within Marriott's brand image, commercial orientation and projected ROI. " Developers  should ask themselves what is it you're looking to achieve, what are your goals, and within what timescales?" she added.

Brodie probed more regarding commercial orientation and asked Murphy to give an overview of how Chinese developers have approached the sector from a market entry standpoint. "China hotel developers have been very ambitious and aggressive, whereas Serviced Apartment developers have a more conservative approach. There may be 10 locations right for a hotel versus only three for serviced apartments" he said.

Both panelists thought there was considerable upside in China's 2nd and 3rd tier cities, however this would be tempered with a higher risk element - (because of this) "IHG would look to work with a (knowledgeable) local third partner if required" said Zhu.

After a short break for lunch and business networking we had a presentation from Jessica Yu, chairman, Golden Union Investment Group, an active hotel and extended stay investment company and owner of the recently renovated THE ONE Executive Suites, Shanghai.

She felt there was a current undersupply in the top end Shanghai serviced apartment sector and was pleased with the additional velocity of sales the Kempinski brand had created since affiliating after the renovation. 

Interestingly, it took Golden Union Investment Group around 18 months to decide on the ideal brand partner and the defining factor was because Kempinski had strong European origins versus other US hotel brands.

Jim Fu, director of sales and marketing, IFC Residence, Shanghai, moderated the next panel focusing on Operating for Optimal Environmental Returns - Creating a Community. Panelists were James Costa; Ingrid Kamphuis, general manager, Shama Luxe at Xintiandi and Beatrice Wong, general manager, Modena Putuo Shanghai boutique hotel.

The conversation quickly moved onto streamlining operations to maximise ROI with Costa commenting that in the future "we'll see an automated check-in, check-out process and a more streamlined inventory, (continuing) ROI takes care of itself if revenues increase".

Kamphuis agreed, stating she expected to see more "centralised functions and procurement leading to a lower staff headcount". Wong's focus within her boutique hotel property was more based around environmental cost savings of which her guests were becoming more positively aware, stating that they'd changed to LED lighting making a 58% cost saving. Fu asked about future serviced apartment guest requirements, and Kamphuis' thoughts were based around technology improvements "bringing the business center into the apartment" for business guests and increasing telephone conferencing facilities with better Internet bandwidth. Costa highlighted continued issues with the Chinese Internet filter as a technology barrier, and moved the conversation onto how Frasers guests are looking to incorporate a more healthier lifestyle within their stay, "we'll have better workout equipment, a more healthy quality food selection, and better air filters within our properties." He continued that the Chinese traveller expected an expanded food and beverage offering, which contradicts that of his Expat market, and there is a blurring of the serviced apartment and hotel sector within many travellers mindsets. "Security of the guest is another aspect that will continue to be important," he added. Wong said one of her objectives for the future was empowering her team to deal with Trip Advisor guest reviews more positively from a service recovery perspective.

Day 2:

Hosted by yours truly, we opened with an inspiring presentation by Yuan Ye, CEO, CRE China Property and Shanghai Chongfu Investment Holdings. Yuan's company owns serviced apartments and boutique hotels predominantly in Shanghai, and his presentation focused on how hotel and serviced apartment market dynamics had changed from a developer point of view. "The Shanghai property market has increased ten fold, but there's been little increase in rate (REVPAR) over this time. Commercial mortgages are around 7%, with overseas interest rates at 2% - the dynamics have changed. New build developers need to consider whether to look to make a profit by selling on completion or to own over time based on future market conditions" he said. He made reference to how the Chinese Government places stricter control over properties now than in the past, and how he's looking to incorporate a 'buy to let' hotel room investment model into a future project. " Offering suitable basic serviced apartment accommodation based on the demand from white collar workers in China is going to be a big future market for us" he said. "We like to have a collabortative approach where the developer works with the operator and tenant - it's a winning formula, like Alibaba meets demand for almost all its customers" he added.   

The next panel session focused on Operating for Optimal Financial Returns - Potential for Growth of Investment in Serviced Apartments, featuring some heavy hitters from the hotel and serviced apartment investment sector. Moderator John Wong, regional general manager, Lanson Place, asked each panelist to give an overview of their company and summarise what they're seeing in the Asian serviced apartment sector for the benefit of the audience. Tommy Lai, vice president of development, ONYX Hospitality Group, North Asia, was first to talk about his company's approach to development and operating within the sector, highlighting his brand portfolio consisting of Sharma Luxe and Sharma Lay, the luxury boutique serviced apartment provider; Ozo, the select service hotel brand; Saffron, the luxury hotel and resort brand; Amari hotels, the mid to upper scale hotel brand and the Mosaic collection of small hotels and resorts. Lai said their approach, having already achieved a decent presence in Hong Kong is "to develop in main Chinese Cities." Lai continued that he'd noticed a distinct serviced apartment developer downward trend with a "move to the medium and low end sector" where operators are competiting with strata title rentals. "Initially there was a long stay focus, now short stay is becoming popular and we find corporates more mobile more than they used to need to be." 

Lai highlighted that increasing labour costs of around 11% YOY, were a challenge to deal with when serviced apartment room rental costs are increasing at a lower rate, "leading to a shrinking margin".

Tan Tze Shang, regional general manager of Greater China, The Ascott Group, highlighted the second tier markets as a big opportunity his company is currently expanding into, and the fact the ROI for investors developing serviced apartments is higher in comparison to hotels. Hospitality investors from outside China are moving into the sector and "there's huge potential for growth. Korean investors have helped drive the serviced apartment market in Xian and Shenyang." said Tze Shang. Steven Wang, general manager of asset management, SPG Land (Holdings), highlighted the importance of branded product in today's market and how pleased the company was with Frasers Hospitality appointed as operating managers for its landmark high-end serviced apartment in Suzhou. Perhaps unsurprisingly, Lydia Li, deputy director for business development, Frasers Hospitality, added that the importance of people and effective training within an organisation shouldn't be underestimated. Concluding the session, again the cost of labour resurfaced in the discussion with Tze Shang highlighting that this and power costs were the two biggest expenses within a fully operational building.

In closing the conference, lots of delegates agreed the event was a good start for the Asian serviced apartment sector to come together annually as a group and learn, share best practice and experiences, network and do business. 

Despite being a larger more developed marketplace, the Asian serviced apartment and extended stay sector is experiencing similar challenges and successes to Europe highlighted at the International Serviced Apartment Summit incorporating Extended Stay held earlier in the year.

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