Cover Story

Coming home

The demand for quality and inexpensive accommodation that gives a home-like feel to guests has triggered the growth for the extended-stay segment. Sayoni Bhaduri explores the serviced apartment sector to find out that many international hotel chains are feeding the market.

Just like civilisations follow geography, the hospitality segment follows industrial development in a given region. The cities that show increased activity in industrial development - IT/ITeS in Bangalore and Hyderabad, BPO/KPO in Mumbai and Pune, and biotechnology and pharmaceutical in Hyderabad - sooner or later show increased activity in the hospitality sector.

This is natural, because the supply will always be triggered by demand. Perhaps one can predict the future and emerging regions that will see a lot of hotels mushrooming - more specifically, serviced apartments. Many hotel chains, mostly international, have already announced their decision to either enter the Indian market with their brand of serviced apartments or expand further.

Slow and steady

The serviced apartment market is an interesting segment to understand and follow. Initial stages are usually unpredictable and this market is no exception. In 2004, Robert Phillips, director (Sales & Marketing) of Oakwood Asia Pacific had said, "I believe that Indian cities can be compared to other major markets around the world as far as serviced apartments are concerned. Cities like Los Angeles, Singapore and Bangkok support 3,000-5,000 serviced flats and secondary cities support several hundred apartments."

Three years later the situation remains more or less unchanged. According to Ajay Bakaya, executive director, Sarovar Hotels & Resorts, there is a constant consumer demand for serviced apartments in cities like Pune, Bangalore, and Chennai. It is a specific and niche market for private and personalised spaces."

Since it is a niche product, its demand sprouts from specific pockets of the market - corporate executives from other cities or countries or on short term transfers (sometimes with families), leisure holidayers on a long vacation. According to Dilip Mukherji, manager of Delhi-based Enkay Condominiums, hotels are not as comfortable; serviced apartments provide more space and feel like home. "MNCs often send their executives to various places and they often travel with their families. Looking for a place which makes them feel at home is an obvious need and serviced apartments are able to suffice these needs," he adds.

Sweet suite

'Suites at the price of hotel rooms' is how Chander Baljee, CEO of Royal Orchid Hotels describes serviced apartments. It is not the room rates where guests save but on the incidentals. Baljee explains, "Sometimes serviced apartments can cater to short stays as well when there is no space in hotels. For instance, they are a convenient option during conferences, etc."

Prices range from Rs 7, 000 per week to Rs 1,25,000 per month, but this depends on the location and the size of apartments, which may vary from a studio apartment which is approximately 500 square feet to a three-bedroom apartment which is 1,160 square feet.

According to the Knight Frank's India Hotel Review, east as a region has a lot of potential. As the serviced apartment sector matures, Kolkata will see a growing demand for long-stay options, particularly Rajarhat. Fast-paced growth in the NCR region together with the upcoming Commonwealth Games has fueled its development in Delhi as well.

In the west, Global Hyatt is expected to launch its Hyatt Place in India soon. It already has presence internationally and plans to have an impressive 120 hotels up and running by December 2007 throughout the US. Meanwhile, Pune has already seen the success of Seasons Serviced Apartments, which boasts of approximately 80-85 per cent occupancy.

In south, the serviced apartment sector in Bangalore is growing with 80-90 per cent occupancy with Oakwood, Mariott and Shangri-La tying up with local players. Chennai too, is expecting 10 to 12 new apartment complexes.

Different strokes

Unfortunately, this segment does not have any grading or classification system. In FHRAI's annual convention held in November last year, it was said that they, together with the tourism ministry will work to bring in a classification system for serviced apartments and guest houses. Guest houses have been regularised but no such measure has been fixed for the serviced apartments yet.

Its president, Rajesh Mishra, says, "The government still has to decide as to the classification; no guidelines have been set as of now." He believes that the hospitality and tourism department needs to be decontrolled from the provisions of the Indian penal code, and the tourism department agrees with him. A classification will assure the guest of the quality of services and will also differentiate between the various room-rates.

In India, the serviced apartment scenario has taken an interesting turn. Unlike the West, where experienced hoteliers are entering the serviced apartments sector, India is seeing the entry of real estate developers and builders who don't have any hospitality background. Baljee says, "A lot of builders wish to give apartments in lots but do not want to do it themselves; they want to collaborate with the hospitality sector."

Adding to this is Norman de Souza, CEO of de Souza group, who says, "The concept (serviced apartment) is to lease out properties on behalf of the owners. This way the property is maintained and the value also appreciates." For example, Seasons in Pune is a deal between Naiknavare and Associates, builders and property developers and Vithal Kamat's Concept Hospitality. In Delhi, Enkay condominiums are serviced apartments where the company has its own property management team which provides services to the guests as well. The group not only specialises in serviced apartments and property management but also in furnished apartments as well as real estate.

In the unfortunate case where the apartments aren't being occupied, the developers can sell them as ownership flats. Many owners even lease their flats to operators who manage these as service apartments and give the owner a share of the profit. de Souza group, a new player in the service apartment, has planned to open service apartments in Goa, where the main focus is on return guests who are tired of regular hotels.

According to Bakaya, "Serviced apartments make a lot of sense. If the city occupancy is less than 75-80 per cent, these apartments are more feasible. The RevPAR will be less initially, but in the long run it makes more sense." In contrast, Baljee believes, "When the going is good, a lot of players enter the market, but it is soon followed by a shake-out when the business growth is stumped. At that stage, it will be the survival of the fittest."