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Peta Tomlinson

Vanapa Ongvises

An abundance of options that includes brand-new projects and converted buildings is driving a new vogue lifestyle

Consumers are the big winners in the rush towards the development of serviced apartments  in Hong Kong, to the extent of almost being spoiled for choice.

Two years of consistent new supply, with more buildings under way or at planning stage, reflects a trend that sees the bar in serviced apartment living rise ever higher, with no sign of abating.

The most notable market shift, however, has been the upswing of 'conversion jobs', where clever developers, sometimes entering the property market for the first time, are turning former commercial or residential blocks into financially more lucrative serviced apartments.

Design-led, and boutique in style, these new vogue lifestyle options are giving hotels and regular apartments a run for their money in terms of price competitiveness and services provided.

Jane Garnett, director of residential services at CB Richard Ellis, says property owners latched on to the concept after watching  demand strengthen in the serviced apartment sector, while the returns on their commercial or residential buildings languished.

With the government clamping down on approvals for new developments, these owners saw a window of opportunity within their existing properties.

'We have seen a lot of new entrants to the market, and although we are not yet at saturation point, we are probably getting close,' Ms Garnett says.

She says the opening early next year of 600 serviced apartments and 400 hotel rooms at the Four Seasons development, IFC Two, should top up the high end of the market. But there is a niche still to be filled, she adds, and that is in providing good quality but lower-budget stock.

'Demand for serviced apartments has grown because of its flexibility. There's no need to lock in to a long-term lease, put down security and utilities deposits or hire a domestic helper - all that has been done for you.

'This has resulted in high occupancy levels of 80 per cent or above at the luxury level - but we've also noticed a knock-through effect across the board,' Ms Garnett says.

'People don't necessarily want a gym in the building. They don't need Italian styling, Spanish crystal or to have the bed linen changed every day, but they still want it to be very nice.'

Ovolo, for example, has experienced 90 per cent to 95 per cent occupancy since opening in Central in 2002, pitching luxury at an affordable price. It still offers the top-end 'must haves' - plasma televisions, surround sound systems and Italian linen - but at monthly rentals that average $39,000.

Ovolo and the Shama group also offer incentives such as gymnasium and private club memberships, restaurant discounts or priority seating.

'The past few years have seen [serviced apartment] owners forming strategic alliances with other businesses to support each other through the hard times, and I believe these partnerships will continue. It's the value-added services that people like - even if they don't necessarily use them,' Ms Garnett says.

With corporate budgets shrinking and more people receiving a lump sum package and therefore less willing to spend their own money on housing, Ms Garnett also sees increasing demand for serviced apartments in the $10,000 to $15,000 sector. 'There is plenty of lower grade stock around, but it will need upgrading in order to compete,' she says.

People are also more willing to move to Kowloon or the New Territories, where rents are cheaper, further opening up the lower-end niche market.

'Families in particular want to get out of the city. Low-rise, low density [housing] was very much the flavour of the month during the Sars epidemic last year, and still is. They would rather commute than have 50 people sneeze on them in the lift lobby,' Ms Garnett says.

However, market research shows the best performers in the serviced apartment sector continue to be those in the traditional, inner-city areas.

Colliers International reports a buoyant demand for all serviced apartments near the business districts of Central and Tsim Sha Tsui, while others in decentralised areas, such as Tsuen Wan, differ from one project to another.

Simon Lo, director of research and consultancy, attributes this to a direct relationship between serviced apartments in the central business district areas and grade-A offices. Colliers predicts an upward trend in rents in the serviced apartment sector, about 2 percentage points above the anticipated growth in standard apartments in the luxury sector, with 'service' being the key driver.

'Tenants are demanding quality services,' Mr Lo says. 'In response to changes in the market, vendors have been constantly upgrading and restructuring the provision of their services in regard to room size and technology. For example, a major renovation scheme is under way at Parkside, one of the serviced apartment blocks at Pacific Place.'

So, in the face of rising consumer expectations, is it a fact that only the high end will survive?

Anton Eilers,  regional residential director for Colliers, says: 'There will always be a market for each different sector - high, medium and low - as Hong Kong people and companies based here are involved in a diverse range of industries, from the high-end legal, financial and consultancy sector, to retail and tourism [mid-range], to low-cost small traders and manufacturers.

'The real issues as to who will survive will depend on the demand and supply situation in different sectors, and the development's location.'



A rush of development means greater choice