Hotels stall while serviced apartments survive

BANGKOK, 25 June 2020: The Covid-19 pandemic walloped Thailand’s hotel industry, but Bangkok’s serviced apartments weathered the storm, according to property consultant JLL.

In a recently released study, JLL claims 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, although the average occupancy rates declined 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.

“While the ongoing tourism market slump has forced the majority of hotels across Thailand to close their doors to lower their fixed costs, most of the Bangkok’s serviced apartments remain open to serve long-stay guests,” says JLL Hotels and Hospitality Group vice president, investment sales Asia, Pimpanga Yomchinda.

“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 a 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 the majority of traditional hotels do not target long-stay guests, there has been a recent trend in hotels expanding into the extended-stay market, notably Bangkok Marriott Hotel the Surawong and the upcoming Novotel Living Bangkok Sukhumvit 34.

Strategic advisory & asset management, vice president Alex Sigeda says: “With core demand from the 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.”

While the Covid-19 outbreak crisis has led to many new normals in the hospitality industry, JLL expects the pandemic also to 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 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 preserving a portion of their room inventory for the long-stay segment, according to Pimpanga.

“We expect this trend to grow further as operators have realized the complementary advantages of the two accommodation types. Among the 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.

JLL (NYSE: JLL) is a leading professional services firm that specializes in real estate and investment management. A Fortune 500 company with nearly 300 corporate offices, the company has operations in over 80 countries. JLL is the brand name, and a registered trademark, of Jones Lang LaSalle Incorporated.