Serviced apartments weathering the storm

Thailand’s hospitality industry has been hit hard by the COVID-19 pandemic and Bangkok’s serviced apartments are no exception. However, a recent study by JLL shows serviced apartments have generally fared better than hotels in current and past times of distress. The global property consultant expects the pandemic to boost the growing trend of mixed-use format offering hotel rooms and serviced apartments in a single development, as well as continuing interest from local and regional developers in developing standalone serviced apartments.

JLL’s study monitored international grade hotels and serviced apartments across Bangkok between January and April 2020. Findings from the study show that over 80% of the city’s serviced apartments remained open at the end of April, with the average occupancy rates declining by 30% year-on-year. During the same period, the majority of hotels across the city was shut down and those that remained operational saw occupancies drop by nearly 50% year on year, many into single digit occupancies.

“Whilst the ongoing tourism market slump has forced the majority of hotels across Thailand to close their doors in order to lower their fixed costs, most of the Bangkok’s serviced apartments have remained open to serve long-stay guests,” says Ms Pimpanga Yomchinda, Vice President, Investment Sales Asia, JLL Hotels and Hospitality Group.

“Tourists or short-stay guests represent a smaller demand source in Bangkok’s serviced apartment sector. Though we have seen serviced apartments shifting their guest acquisition strategies by increasing the portion of short-stay guests in recent years, long-stay guests, most of whom are expatriates, have remained their top source of demand. This explains why the serviced apartment sector has felt relatively smaller impact from the COVID-19 pandemic than hotels that rely more on short-stay demand from tourists,” she explains.

JLL’s study indicates that, historically, the average distribution between short- and long-stay guests in serviced apartments has been 25/75 with a gradual shift in recent years to 40/60. On the other hand, the majority of hotels do not have long-stay guests. While majority of traditional hotels do not target long-stay guests, there has been a recent trend in hotels expanding into extended-stay market, notably Bangkok Marriott Hotel the Surawong and the upcoming Novotel Living Bangkok Sukhumvit 34.

Mr. Alex Sigeda, Vice President, Strategic Advisory & Asset Management, says “With core demand from long-stay customer base, serviced apartments have proven to be more resilient than other hospitality segments in the time of crisis. A similar pattern was witnessed during past events had major effects on Thailand’s tourism industry, such as the Great Flood in 2011, political unrests in 2013-2014 and the Thai baht appreciation in 2019.”

Whilst the COVID-19 outbreak crisis has led to many new normals in the hospitality industry, JLL expects the pandemic to also accelerate the emergence of a hybrid accommodation development format that combines hotel and serviced apartments.

“As investment asset classes, serviced apartments and hotels have their respective advantages and disadvantages. The former generally offers a more efficient and stable operation that keeps the operator relatively safe in a down market. The latter generally offers more yielding opportunities during periods of high demand, given a more flexible inventory without long-stay offerings,” says Mr. Sigeda. 

To help bridge the gap between these two models, regional and global operators have been introducing a number of hybrid options into their brand stables, focusing on short-stay demand, while still reserving a portion of their room inventory for the long-stay segment, according to Ms Pimpanga. “We expect this trend to grow further as operators have realized complementary advantages of the two accommodation types. Among the more recent examples in Bangkok are Staybridge Suites Thonglor by IHG and the upcoming Lyf Sukhumvit 8 by Ascott.

Market snapshot

In the basket of hospitality developments that JLL monitors, there are over 90 serviced apartment developments with more than 9,500 rooms across Bangkok, accounting for 7.5% of the city’s combined stock of serviced apartments and hotel rooms. While many of these developments are unbranded, a large number are managed by international and domestic operators such as Marriott International, InterContinental Hotel Group, Ascott, Oakwood, Onyx, Chatrium Hotels & Residences, and Jasmine Group.