Hong Kong residents seem to like the flexibility of serviced apartments, particularly now that they are able to offer daily rates. For instance, one successful boutique brand of apartments opposite Times Square shopping mall blazons the statement across its storefront - 'Now offering short stays'.
It wasn't always so. Parkview, the development overlooking the country park that leads down to the Tai Tam reservoir, was one of the first serviced apartment developments in the city. Early in the industry's development, Parkview started offering a daily rate, but the government told it to stop. Parkview's sales office confirmed that they used to offer a daily rate but have now stopped offering anything less than a 28-day stay because of the government policy.
Serviced apartments were once set aside as a formal category of property in the city, according to the zoning plans drawn up by the Town Planning Board. But the board dropped all reference to serviced apartments from the rules and regulations in 2000.
The Home Affairs Department said the Parkview issue was simply about licensing - if serviced apartments offered accommodation for a minimum of 28 continuous days they were exempt from having to get a hotel or guesthouse licence. Parkview didn't have the hotel permit.
But not all serviced apartments with guesthouse licences have chosen to offer daily rates. If they did, it was typically only to their biggest customers or by special arrangement. That's all changed with the financial downturn. Now if there is a market niche to fill, developers will fill it.
Jones Lang LaSalle recently released a 19-page paper on serviced apartments in Hong Kong. It noted that serviced apartments offered better yields than similar categories of real estate, making it attractive for developers to take over office buildings and transform them into living space.
The report broke the numbers down for a 50,000 sq ft space. Using the building as Grade C office space, a landlord can command a first-year rental of HK$15 per square foot and generate a rate of return of 4.6 per cent, meaning the project will pay back the cost of outfitting in 19 years. By comparison, using the same space for boutique serviced apartments commands a first-year rental of HK$35 per square foot, an 8.3 per cent rate of return - and the project will pay for itself after 11 years.