Are serviced residences worth investing in in the new normal?

Posted July 12, 2022

By: Property Report PH

Serviced residences’ occupancy rate in Metro Manila rose to about 80 percent even at the height of the global health crisis.

With that in mind, people are getting curious. Why do serviced residences continue to thrive amid the COVID-19 pandemic? And are they worth investing in?

These questions were answered last June 30 in a webinar titled, “At Your Service: Investing in Serviced Residences in a Post-COVID Era” by some of the top names in the residential and lodging industry.

Tomas Lorenzo, president & CEO of Torre Lorenzo Development Corporation, Philip Barnes, country general manager of The Ascott Limited Philippines; and Joey Bondoc, associate director and head of research of Colliers Philippines; gave their takes on serviced residences and their impact on the real estate industry.

Your own space

Lorenzo defines a serviced residence as “a hybrid of a hotel and an apartment.”

“It’s really for people who want to stay longer in a place,” he said. “They want that flexibility, so people who need a place to stay for two weeks to a month or more would choose a serviced residence. It is completely furnished, it usually has a kitchenette, you can cook. Some, like ours, have laundry so that you can wash your clothes in the unit. It’s really the best of both worlds.”

Moreover, Barnes described a serviced residence as a “home away from home,” adding it has all the services of a hotel available for potential residents.

“In terms of a serviced residence, you have the space. So you have the kitchen, you have the laundrette. Your average-sized units are bigger than the hotel rooms. And so,  you have those comfort levels,” he explained. “One of the bigger aspects is you can actually work from home in your serviced residence. Whereas in a hotel, it might feel more compact.”

When it comes to The Ascott Limited Philippines’ markets, Barnes saw that it is predominantly corporate, seeing both long-term and short-term stays from guests.

“Guests would rather stay in serviced residences as the pandemic made them more ‘self-guided’ when it comes to doing their own chores,” Barnes added. “They want to stay in a bigger property where they can prepare their own food, do their own laundry.”

A larger market

Torre Lorenzo Development Corporation focused mostly on premium university residences to cater to the student market, but driven by the demand for serviced residences, it has started to build one in the Malate area.

“It really depends on the market. If we’re near a school, we’ll consider university residences, but I see so much corporate and embassy business in the area that’s really the target market of serviced residences,” Lorenzo shared.

He added that he saw Filipinos from the provinces, who come to Manila, and stay in serviced residences temporarily.

“Many of them stay in the Manila area because it’s near the airport, there are a lot of tourist spots to visit like Intramuros, and lots of restaurants,” he said. “It really goes back to location, location.”

Bondoc, on the other hand, said that Colliers Philippines sees a lot of international companies wanting to expand in the country, surveying some places that can be the next BPO hubs outside of Metro Manila.

With that in mind, instead of staying in hotels and condominiums for a long time, they see serviced residences as the perfect accommodation.

“This is a very good market for these serviced apartment segments. Also, you have to note domestic tourism and foreign travels in general. These two segments are also improving. If you are to look at EATA’s projection, they are projecting foreign travel to recover by 2023 or early 2024,” Bondoc explained.

“So, in a macro-economic perspective, there really is a great potential for the rebound of a serviced apartment. You also see consular officials now returning to the Philippines, so that is another segment that we should capture and that we should really focus on,” he added.

The serviced residences occupancy rate saw a rise towards 80 percent at the height of the global pandemic. Barnes credits the BPO employees who opted to work-from-home at the start of the pandemic.

“Since call centers and BPOs were no longer able to be in the offices, the first market was to move off-site where they can work from home,” he recalled. “Majority of the (employees in) BPO and call centers were in our properties using our serviced residencies as a work-from-home proponent, as well.”

Barnes also noted how families and solo travelers opted to quarantine in their property rather than a small apartment.

“They would like to do it in a 50-meter studio or a 75-meter one-bedroom or even a 225-square meter two-bedroom and three-bedroom,” he explained. “So, those home comforts allowed us to continue within the pandemic.”

Lorenzo believes that the 80-percent occupancy rate would continue in Metro Manila, as well as rise in different provinces, as many tourists prefer to have their long-term stay in serviced residences.

“Many tourists choose to stay in our serviced apartment because they like the design. It is really very high-end, it’s a five-star plus experience for them,” he enthused. “Just because it’s a serviced apartment doesn’t mean it’s very bare and has no service. You can actually have a serviced apartment that’s very luxurious.”

Lorenzo is happy to note that foreign tourists are coming back. And most of them opt to stay in serviced residences.

“That market is coming back, even in Davao, because international flights have re-opened. We’re getting many foreign visitors who are tourists. They’re actually coming to the Philippines because of the low COVID numbers. It’s already a market that has developed since the pandemic,” he said.

An alternative investment

Just like condos, houses, lots, investing in  serviced residences can also be a good investment.

“There are people who are not thinking of living in an apartment, they just want to earn from it,” noted Lorenzo. “And your chances of getting a good rental income is very high when you invest on a serviced apartment managed by an international, well-known brand like Ascott or Dusit.  So, people who buy from us,  can earn anywhere from 4.4 to six-percent per annum better than the bank,” said Lorenzo.

Barnes discussed how The Ascott Limited Philippines looks after its buildings and units as an owner and operator.

“We also want to engage and look after the units and the buildings so we can continue that life cycle for a longer period,” Barnes said. “Say, the unit owners do actually reinvest in terms of refurbishment and renovations, which usually takes five to seven years, we try to maintain it well so that can be stretched for 10 to 12 years.”

With that, a lot of individuals are considering to invest in serviced residences.

“They are looking for a source of recurring income. Basically, these are seasoned investors, they’re experts already who are looking to diversify their investments, especially in the property market,” he explained.

He also added that investing in serviced residences can be a great opportunity for overseas Filipino workers (OFWs).

“There are OFWs who have invested in a serviced apartment, although I think this is a largely underserved, unpacked market and there should be a greater effort to reach OFWs who mostly invest in a house and lot, or a condominium unit. I think they should be educated further in terms of the reliability of a serviced apartment,” Bondoc said.

Asked if serviced residences are a more luxury type of investment, Barnes agrees, saying there are many aspects to take into consideration before investing.

“I think we have to take into context the location, the developer and the operator,” he said. “When you have the product in place, you define what the market has to offer. That is when you look at your price points and what you can do. It really depends on the product, the location, and the clientele that you are operating.”

A rising trend

Torre Lorenzo Development Corporation builds its  wide array of developments to markets where these are needed, including their serviced residences.

“For example, if you have many BPOs in the area, then a serviced apartment works. Anywhere where there are expatriates or a diplomatic community, a serviced apartment works. Anywhere where there is a lot of corporate movement, it needs a serviced apartment,” Lorenzo said. “Whether people move to Hong Kong, London, or New York, the serviced apartment has that niche which everybody appreciates as the place to stay for one month to six months.”

Bondoc believes the Philippines can follow in on the trend for serviced apartments, citing Davao City and Cebu as two rising hubs for such.

“Davao is one of the major BPO locations outside of Metro Manila. As Lorenzo mentioned, if you have BPO companies, if you have expats, then definitely this will be a very good market for serviced apartment segments,” he said. “I think for a lot of property players have diversified . They are not just developing hotels but also expanding through serviced apartments at this point. Again, we have key places like Cebu, Davao, which are viable locations.”

Lorenzo also enumerated reasons why one should start investing in serviced apartments: “It’s worry-free, gives passive income, and has flexibility.”

“You can use it for two weeks of the year and, the rest of the time, you’re earning from it. It generates income on a quarterly basis and when you do decide to sell it, there is value appreciation,” he said,  “For those, who are already looking at something different to invest in, a serviced residence is a good investment to get into.”

Barnes is enthusiastic about the trend for serviced residences in the Philippines.

“A really exciting couple of years coming up for us in the serviced residence industry. Between April and June 2023, we’re launching our fourth serviced residence brand: Live Your Freedom or LYF. We’re really excited for this brand to come into the market,” he said.

Bondoc, on the other hand,  said the serviced residence industry is a sector to watch out for as the tourism, property, and leisure sector slowly recovers from the effects of the COVID-19 pandemic.

“There’s really revenge travel and we’re starting to see that. A lot of analysts are very optimistic and they’re looking at a faster recovery not just with the property market but also of the leisure sector,” he said. “We believe that developers should really seize opportunities in the market, like hotels, other accommodation facilities, and, of course, the serviced apartment segment is definitely one sector to watch out for as we see the recovery of the global and local travel sectors.”