Developers see potential in service apartments

Developers of service apartments in Chennai are now seeking opportunities for expansion both locally and beyond.

Chennai: Recently, the Singapore-based Ascott Ltd, which manages the Somerset Service Residence in MRC Nagar in Chennai entered a contract with Sandhya Hotels set to manage three new serviced residences, at Sri City near Chennai, Bengaluru and Hyderabad. Similarly, 14 Square which has such properties in 20 cities around India, including Chennai is working on expanding its footprint in the nation.

The activity in the sector is not without precedent as Sanjay Chugh, founder of Skylines Property Consultants, tells us, “One of the reasons why service apartments hold such promise in Chennai is due to the huge quantum of floating, migrant and expat population entering the city. From a perspective of convenience and economy, these properties are sought by medium to long term occupants, looking for a place where they have facilities similar to that of a hotel, and some more options – like the provision to cook and do one’s own laundry. The expat crowd usually prefers such apartments as most of them come with housekeeping facilities too.”
Developers in the city are also eyeing the service apartment sector with keenness and say the future holds promise for the business. Shyam Kumar, a project management consultant with the Plaza Group – Virgo Properties (P) Ltd, that has a 60 unit service apartment facility in Kovilambakkam, says, “The hospitality realty market in Chennai is witnessing a gradual revival. The manufacturing sector in the city is still on a high, owing to which there is a lot of movement into the city, of people hailing from industries in this sector, both nationally and globally. Usually, the occupancy rates in the hospitality business (i.e. with regard to hotels) is about 50 to 60 per cent. Service apartments are about 10 per cent lesser than that.
However, we are expecting the market to look up in the next one year, with service apartments matching up to the occupancy rates of hotels. We will certainly be considering investing in more such properties, but maybe a year later.”
In fact, many real estate developers are also now looking at service apartments as an alternative revenue stream with multiple benefits. Sanjay says, “As per law, any developer of fering properties in in an area exceeding two lakh square feet is supposed to allocate 10 per cent of their property for developing homes for the EWS (Economical Weaker Sections of society). Area-wise, these units cannot exceed 650 square feet. Many developers are now leasing or selling such properties to investors who in turn convert them into service apartments and rent it out to customers. Developers are looking at it as yet another mode of parallel income.”
However, there are property developers in the city, who are treading with caution in the midst of these new developments. Ashish R Thadani, who runs the Absolute Homes chain of service apartments in Kotturpuram, Alwarpet and Chamiers Road says, “It wouldn’t be an exaggeration to say that the supply of such apartments has reached a saturation level in the city. Where are all these apartment managers going to find their customers, when even star hotels these days are offering corporate clients room rates bordering on Rs 2,500 a day. Occupancy rates in the city are just about satisfactory, but I am not too buoyed about service apartments in the outskirts.”
Cost effective 
Can be rented out for rates that are almost 25 per cent lower than hotels
Offers facilities such as kitchenette, laundry among others
Entry level rooms can cost anywhere between Rs 12,000 to Rs 15,000 per month
Twin sharing options are available for Rs 8,000 to Rs 10,000 pm

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