Lucas Loh, managing director of Ascott International and China and senior vice-president for The Ascott Group shares his views on the burgeoning serviced apartments industry in China.
Q: Who make up the majority of Ascott International’s residents in China?
A: Our primary market is the extended stay market – anything above one month. 75% of our guests are in this category. The remaining 35% are those who stay from a few days to a few weeks. In the bigger cities there’s a trend of a lot of business travelers who stay for less than a month. There’s also a lot of so-called ‘assignment groups’ who are sent to Beijing or Shanghai. Like banks or major multinationals, who are sending their special task force into a city for one, three or even six months.
As a serviced residence, I know my limitations compared to the higher hotels. If you are a pure hotel client, you want elaborate commercial things, you won’t find it in us. On the other hand, if you want some privacy, space, a kitchen, room to invite friends over, coming in and out of the building [and not having] 20 or 30 pairs of eyes looking at you – we offer quite an exclusive environment. We don’t encroach too much on the hotel sector, but are happy providing for the market gap in the industry that other serviced residences can’t cater for.
Q: Are most of your residents international clients?
A: At this moment, about 85-90% are foreigners. I say 85-90% because about 5% are Chinese from other countries who come back here to work. I do have 10% who are Chinese – some work for multinationals and some for major Chinese corporations here. This is an increasing trend; before, I didn’t have this percentage.
Foreign companies are employing more and more ‘returnees’ and local Chinese. I see more and more local people housing in serviced apartments. The other thing is that as Chinese corporations expand beyond their city or province and become more international, more so-called ‘management’ are traveling around.
Q: How do your residences in China differ in the services offered?
A: We basically group them in three brands – Ascott, Somerset and Citadines. The Ascott brand is the most luxurious, then Somerset, and finally the Citadines brand which we brought to Asia this year. Citadines used to be a European-centric chain; it’s serviced apartments that have limited and optional service; you choose what you want and pay for what you choose. This is more appealing to the younger client; 25-40 year-olds who prefer to choose whatever package they want.
Q: Do you have a Citadines residence in Shanghai?
A: We have opened one in Nanjing Lu but the design of it is quite European – it does not have the more modern outlook which we are doing in Suzhou and Xi’an. I will make the second Citadines I open in Shanghai more modern.
Q: Do more and more business travelers prefer to stay in serviced apartments rather than hotels?
A: Yes, I see this trend for two reasons. One, increasingly more business travelers are aware that this is an option available to them as the serviced apartment industry grows.
Secondly, there’s a segment of business traveler who want some exclusivity, privacy and space where they can discuss things with their business associates. In a hotel you can see which company is talking to which other company. In China, I can see more and more business travelers who are aware of us as an additional option to staying in a hotel.
Q: So, will there be a growing demand for serviced residences in China?
A: Yes, definitely. Demand for serviced apartments moves in tandem with the economic growth of a particular city or place. As China develops and enjoys high GDP growth we are also seeing a growing demand for serviced apartments.
Demand in key cities like Shanghai, Beijing and Guangzhou comes from the increasing laborization of their industries, where we will see more interaction between the city and the outside world.
But in smaller cities as economic reforms take place we are also seeing a growing demand for serviced apartments. Why? Because more companies that set up in the big cities are moving to secondary cities. Being the front runner in terms of serviced apartments operators and investors in China right now, we are fairly established in the big cities. Our second wave is to move into the secondary cities.
Q: Where are you moving into?
A: We’re definitely moving into Suzhou and Xi’an. We’re already in Dalian, Tianjin and are looking at Wuxi, Hangzhou, Nanjing and Ningbo. All these areas are coming up and there aren’t many serviced apartments there. As they pick up their economic growth, we will also be there to pick up on it.
Q: Is there one particular city where the demand is high?
A: Demand is still highest in the biggest cities but there are also more serviced apartments there, so competition is high. Now, we are keeping focused on the up and coming smaller cities; Suzhou is one. We have 18 serviced apartments across China; 12 have opened and six will open in 2007. My target is to have 10,000 serviced apartment units by 2010, which is about 55-60 serviced apartment blocks. This is a reflection of my head office and their confidence in the Chinese market. We see the Chinese market as a growth market for the serviced apartment industry. The next four years is a golden so-called ‘window period’ to get those targets right.
Q: What is your most recent development to open in China?
A: Somerset Zhongguancun in Beijing. It is located in an up and coming area for the IT and communications industry – the so-called ‘Silicon Valley’ of China. Next year we will be opening four new residences; two in Suzhou, one in Xi’an and Ascott Guangzhou will be ready by the end of 2007.
Q: What does the future hold for serviced residences in China?
A: We’ll see a growing industry, as I have said, because the demand for serviced apartments correlates to economic growth. Many people tell me companies are localizing and will be less dependent on expatriates but I think the number of expatriates will continue to grow.
We will also see an increasing trend from local corporations which gives us more confidence there will be demand for more serviced apartments, and we’re in a good position to catch this demand. Inevitably, as this market goes forward we will have more competition, but by then, brands, service methods and international sales network will become important factors to divide the stronger operators from the others.
About Ascott International
Ascott International is part of The Ascott Group – the largest serviced residence operator outside the US. It has close to17,000 serviced residence units in over 40 cities across 20 countries in Asia Pacific, Europe and the Gulf Region.
Headquartered in Singapore, The Ascott Group established Asia-Pacific’s first branded luxury serviced residence in 1984 and also set up the world’s very first pan-Asian serviced residence real estate investment trust, the Ascott Residence Trust, in March 2006.
The Group is the serviced residence arm of CapitaLand Limited, one of Asia’s largest listed property companies. Also based in Singapore, the company provides property and hospitality services across more than 80 cities in nearly 20 countries.
In China, Ascott International is the largest serviced residence operator with over 3,500 serviced residence units in Shanghai, Beijing, Guangzhou, Dalian, Tianjin, Suzhou and Xi’an. Since its entry into the Chinese market over a decade ago, it has made a total investment of nearly US$782 million here.
Recent achievements in China include being voted ‘Best Serviced Residence Brand’ at the Business Traveller China Awards 2006, ranking No.1 in China’s Top 100 Serviced Apartments Ranking and receiving the Innovative Capital Venture Award in the China Hotel Investment Summit 2006.