Serviced apartments weather hard times but future supply poses more problems

The serviced apartment market bounced back after a torrid Q2 with occupancy up as expats flocked back to the city, according to Colliers International Thailand research report for Bangkok serviced apartments in Q3 2010. While occupancy increased to around 60% in Q3 this still remains below the 70% recorded in the 3rd quarter of 2009. However Antony Picon, Senior Manager for Research at Colliers was upbeat regarding the numbers. “Considering what the sector has gone through the figures are robust. The Japanese are the key market for the longer stay segment of the market and most who left during the troubles appear to have returned”, he said.

But even if the market continues to pick up, the short term future could be bleak according to Patima Jeerapaet, Managing Director at Colliers. He pointed out that in three years from 2009 to the end of 2011 supply could have increased by 40% which would be difficult for even a strong market to absorb. “The long term stay market, while keeping this sector stable compared to hotels, also means that you are highly unlikely to have an upsurge in expats coming to work here in a small space of time”, Mr.Patima said.

The new growth area for apartments is along Thong Lor road in late Sukhumvit.  Considering the distance from the CBD, rental rates in late Sukhumvit are the second highest in Bangkok, even greater than the upmarket Central Lumpini. Jean Marc Garret, Director of Advisory Services | Hospitality explained that a higher proportion of Grade A newer branded residences located in Thong Lor drive up overall rental rates. “Also the area has more of a community feel and is very popular with Japanese expats” Mr. Garret remarked. “The area also benefitted somewhat from the troubles in May as many expats felt it was far away from the riots witnessed on international TV stations”.

Serviced apartments are sandwiched between two types of business, according to Mr Picon; competing for short term business with hotels and long term stays with apartments for lease or condominiums. “They can do this successfully but many will have to distinguish themselves more in the future”, he added.  “ With their larger unit configurations some could develop a niche in the medical tourist market, especially for families coming from the Middle East or even create flexible home offices and meeting rooms for visitors who wish to conduct business”, he added.

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