Hotel shortage boosts demand for serviced apartments, prompting office block conversions
Owners are converting underused, non-prime office buildings to tap market for longer-stay accommodation and boost rental incomes
"Serviced apartment, not a hotel." That, recalled Joseph Bautista, was his wife's response when he asked about her choice of accommodation in Hong Kong during their planned one-month business trip to the city.
"My wife loves to cook and there's no way she can do this even if we stay in a luxury hotel," explained Bautista, who is now in town setting up an import-export venture between his Manila-based company and several firms in Hong Kong which source products from China.
"She's actually very happy with the deal that we've got because the package is only about HK$20,000 for a month, which is cheaper than staying in a hotel. And what makes the serviced apartment more attractive is the fact that it's just a few steps from the Wan Chai MTR station which makes travel convenient for us."
Aside from long-staying visitors like the Bautistas, a growing number of locals, including homebuyers who delayed their purchases after the government's property cooling measures, are looking to serviced apartments for accommodation, analysts say.
In response to this growing demand, more and more property owners are converting underused office buildings into serviced apartments to earn more rental income.
In this way the government's cooling measures have provided an unwitting boost to the serviced apartment sector, the analysts say.
"Owners of office premises stand to get between 30 and 50 per cent more in rental income by converting their properties into serviced apartments," said Ringo Lam, director for valuation at AG Wilkinson & Associates. "This has served as the major driving force for the increasing number of fairly old and underutilised office buildings being converted into serviced apartments."
Demand for serviced apartments, especially in the Central and Wan Chai districts, was strong, added Lam, and more and more property owners were exploring the costs of converting secondary office premises into serviced apartments to see if they could generate higher rental yields.
Vincent Cheung Kiu-cho, national director of greater China valuation advisory services at Cushman & Wakefield, said there was a growing market for serviced apartments among local people awaiting the completion or renovation of their flats, long-staying tourists, and newly arrived expatriates who would later search for long-term accommodation.
"For long-staying visitors it makes economic sense to stay in a 300- to 400 sq ft mid-range serviced apartment in a good location, notably Causeway Bay or Wan Chai, for about HK$20,000 to HK$25,000 a month where they can even cook their meals instead of staying in a hotel and paying about HK$1,000 a night in a four-star hotel," he said.
Owners of office buildings who did not see much prospect of getting better rentals in secondary locations on Hong Kong Island, such as Sheung Wan and North Point, may choose to convert their properties.
"If the outline zoning plans in these districts allow this conversion, they may establish serviced apartments to get better value for their properties," he said.
Expatriates either on extended stay or employed in Hong Kong who wished to stay in prime locations close to their places of work also support demand for service apartments, A G Wilkinson's Lam said.
That scores of tourists choose serviced apartments over hotels is hardly surprising. The city's hotel room rates often spiral during peak periods, especially during the Christmas season and Lunar New Year holidays.
A huge imbalance in supply and demand is largely to blame for this. Hong Kong Tourism Board (HKTB) figures show that there are currently 243 hotels in the city, providing 71,959 rooms. Its data also shows tourist arrivals had already reached 25.36 million by the middle of this year.
The gross imbalance is unlikely to ease any time soon, with forecasts of the number of hotels rising to 273 by 2017 but boosting hotel room supply to only about 76,603.
Recognising the bright growth prospects of the city's serviced apartment sector, certain property owners have embarked on refurbishment schemes, aimed principally at maximising returns.
A case in point is V Group of companies, which earlier this month reopened its V Happy Valley serviced apartment block at 68 Sing Woo Road after an extensive, HK$30 million refit that took just over a year.
The company reconfigured the layout of the building and further modernised its interior design in recognition of the greater demand for two-bedroom apartments in the Happy Valley area.
The apartments have been redesigned to maximise space and create more privacy, thereby being more responsive to the needs of guests. The size of each apartment ranges from 488 sq ft to 615 sq ft.