Foreign residents in China have never had it so good when it comes to finding a place to live. The range and availability of quality accommodation in the major cities has soared over the past decade. Recent decisions by Shanghai, Beijing and other cities to do away with the distinction between housing for locals and housing for foreigners mean that that there are now more properties than ever on the market, at more affordable prices.
One segment of the market that is growing particularly quickly are serviced residences. These are fully furnished properties ready for immediate occupation and offered almost exclusively to foreign residents. Services can range from minimal to comprehensive, including the provision of linen, crockery, home entertainment systems and a daily cleaning service.
Well established in Hong Kong and other leading international cities, the concept is now really taking off on the Mainland. It has become a very big market, according to James Hawkey, chief representative of the real estate services firm Cushman & Wake field in Beijing. Both hotel groups and specialist property companies are expanding their presence. Beijing now has about 10 luxury serviced apartment complexes.
Catering to families
The traditional target markets for serviced apartments are singles and couples wanting to live in the central business district of a city. However, the existence of nursery and play facilities at several of the luxury complexes is evidence that many families prefer the convenience of city centre living to the greener environment offered by suburban villas.
One-third of the tenants at the Shanghai Centre in Shanghai, for example, are families. Its marketing director, Byron Kan, says that some families have moved back to the centre from out-of-town villas because of the lack of transport services, shops and restaurants in these places.
The Singapore-based Ascott Group is a leading serviced residence operator, with 8,400 units, and the largest in the Asia-Pacific region. Bert Kan, director of Ascott International, says the company's upmarket Ascott brand caters mostly to the families of senior management, while its Somerset brand has a more contemporary feel for younger people.
Compared with regular accommodation, serviced apartments are priced at a premium of about 50 percent, according to Hawkey. "They work well for people who have a short-term requirement – those who stay for a year or two," he says. "However, anyone planning to stay in a location long-term wants to make a home. They want to buy their own sofa and paint the walls."
Prices for serviced apartments tend to be more competitive than hotels of equivalent standard. Rates differ according to length of stay, but Bert Kan says that while a luxury hotel in Beijing might charge US$150 per night, the Ascott gives double the space (60 sq metres) for just US$20 more. "When we came, we posed a big challenge to operators with hotel hardware and software," he says.
According to him, one of the reasons for the success of stand-alone properties such as Ascott is that they provide a feeling of home that cannot be offered by properties that share facilities with a hotel. Hotels respond by saying that they tend to provide better common services and are able to offer tenants discounts at their shops and restaurants.
On the Mainland, Ascott has a total of six properties, covering Beijing, Shanghai and Tianjin. With the Ascott Beijing now fully open, the group has about 1,500 units in China and a target of double that number by 2005. It expects to open more properties in both Beijing and Shanghai and is also looking closely at Shenyang, Dalian, Qingdao and Guangzhou.
"Wherever the investment goes, we will follow," says Kan. Ascott requires occupancy levels of 45-50 percent to break even, and is currently running at an average of more than 85 percent for its China properties.
The privately owned US company Oakwood Worldwide claims to be the largest temporary housing provider in the world. In the Asia-Pacific region it has decided on a management-only approach, a policy that has restrained its growth opportunities in China. Currently, the group manages 150 apartments and villas in a complex on Ersha Island in Guangzhou. The complex has recently been enjoying 94 percent occupancy rates and, according to Catherine McNabb, Oakwood Asia Pacific's director of sales and marketing, the group has "aggressive expansion plans" for other cities in China.
In October, Oakwood signed an contract to manage a purpose-built serviced residence in Beijing's Chaoyang district. The 330- apartment complex should be open in early 2004. The group is also in talks with the owners of an existing, locally managed apartment complex elsewhere in the city. McNabb believes this could be up and running soon.
The market has certainly changed enormously since the Shanghai Centre became China's first serviced apartment complex in 1989. In its first eight years, the centre was the only serviced apartment complex in town and prospective tenants were required to join a waiting list. Those days are long gone although the centre, which also contains offices and retail outlets, remains a meeting place for the city's expatriate community.
Now faced with competition from the likes of the Forty One Hengshan, Shanghai Kerry Centre and World Pavilion, the Shanghai Centre has cut its prices. Marketing director Byron Kan says that the continuing global recession is taking a toll on the housing market and some multinational firms are looking to reduce their housing allowances or the number of expatriates they send to China. Even so, occupancy at the complex was still a healthy 85-88 percent in the third quarter of 2002.
Likewise, the Beijing Kerry Centre has cut its rates over the past couple of years, so that price levels are now the same as they were when it opened in February 1999. The centre's highest occupancy level was 92 percent in 2000/01 but this has since fallen to around 80 percent. Marketing director Thomas Tay expects things to settle down in 2003 following a flurry of recent openings.
Increased competition has also persuaded several operators to reduce the minimum length of stay. For example, the Beijing Kerry Centre used to insist on a tenure of one year but the market downturn has persuaded it to offer three-month contracts. Tay expects it will revert to a one-year minimum lease policy when market conditions improve. "Most of our tenants are long-stay guests, at CEO or senior management level," he says. "We don't want to have daily occupants since that would affect their quality of life."
Ascott reserves 20 percent of its units for short-term let, although the bulk of its clients sign contracts for at least one year. The Shanghai Centre allows rentals of between three and six months, to accommodate project workers for major clients. It also offers stays of as little as one month to GM employees while they look for an apartment.
Oakwood is particularly flexible about short-term business and is even happy to accommodate daily stays. Such a policy brings serviced apartments into direct competition with hotels. McNabb says business travellers are showing an increasing interest in the concept as an alternative to staying in a hotel. "A hotel is a difficult place to stay for a week or two," says McNabb. She also sees a growing market in those travellers who combine business with leisure – executives coming to China with their partner or children, for example.
Hawkey believes that serviced apartments pose no threat to hotels for travellers wanting to stay only a night or two in a city. Most short-stay travellers want the simplicity of booking a hotel room and the services that they offer. "However, for stays of about a month, there is a real demand," he says.
Hotel groups are responding by incorporating serviced apartments into new building projects. For example, Marriott has 400 executive apartment units in Mainland China. Half are located in the Jing Guang New World Hotel in Beijing and half in Guangzhou's China Hotel by Marriott.
In addition, the group is opening two branded Marriott Executive Apartments complexes in the next couple of years. One, due to open in the second quarter of 2003, will be in Shanghai and the other, slated for 2004, in Dalian. Both will have a 30-day minimum rental. Daniel Lai, Marriott's director of sales and marketing for Greater China, says China's accession to the WTO has increased demand for executive apartments, especially in Shanghai.
The Shangri-La Dingshan complex in Nanjing includes 120 serviced residence units located near the main hotel. Importantly for families, the complex also incorporates Nanjing's only international school. The existence of the apartments gives the hotel the ability to cross-sell to big corporate clients such as Ericsson and BASF, which is building a major petrochemicals plant in the city.
"There is a growing business in [Chinese cities] as the number of joint ventures increases," says the Dingshan's general manager, Kieran Twomey. "Serviced apartments offer a viable alternative. Projects can last three to five years but individuals may change."
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