Unlocking more serviced apartments

Richard Tan, Ascott’s country general manager for Vietnam, spoke with Duc Hanh about the company’s outlook in Vietnam.

How does The Ascott Limited view Vietnam in its global serviced apartment business?

Mr Richard Tan

We consider Vietnam a key growth market for Ascott in Asia. Its high literacy rate and highly productive labour force continue to attract foreign direct investment.

According to Vietnam’s Foreign Investment Agency, foreign direct investment (FDI) to Vietnam totaled $11.57 billion in the first eight months of this year and Vietnam is on track to reach its target to attract between $22 million and $25 million of FDI by the end of the year.

This in turn creates demand for quality accommodation, including serviced residences. Today, we are the largest international serviced residence owner-operator in Vietnam with more than 1,300 apartment units in eight properties across four major cities.

We will be opening Somerset Central TD with 132 serviced residence units in Haiphong next year and the 121-unit Somerset Danang Bay in 2012. We will continue to look for opportunities to expand our presence and will invest $100 million in Vietnam over the next three years so as to increase our portfolio in Vietnam to 1,800 units by 2012.

How has the global economic crisis over the last two years affected the company’s business in Vietnam?

The global economic downturn has affected the hospitality industry worldwide. However, as the majority of our residents are on extended stay, our serviced residences are more resilient to a sudden downturn in corporate and leisure travel caused by the economic slowdown as compared to hotels. In fact, the economic downturn in the past year or two has brought about opportunities for serviced apartment players.

An increasing number of business travellers prefer to stay in a serviced residence as it offers them greater value compared to hotels. Serviced residences remain an attractive accommodation option for companies especially during the economic downturn because it gives companies the flexibility to accommodate their staff for an extended period without having to commit to long leases. It also gives them the flexibility to have a group of staff share a serviced apartment and enjoy the privacy of individual bedrooms within the apartment, instead of putting them up in separate hotel rooms. They can also make use of the kitchen to cook instead of dining out.

What has the company done to overcome the difficult period?

We stepped up our sales and marketing efforts and had more tactical joint promotions with partners like credit card companies and airlines to reach out to more customers and long-stay guests. Currently, over 80 per cent of our guests are with us on long stays of more than a month. We also took the initiative to discuss with our guests and adjust the accommodation package to meet their needs and budget.

In the first half of this year, occupancies for our Somerset serviced residences recovered to reach between mid-80 per cent and 90 per cent.

Why has the company decided to enter Danang while the number of expats in this central city remains modest?

Danang is the gateway city to central Vietnam as well as the eastern gateway to the East-West Economic Corridor. Between 2006 and 2010, Danang’s average gross domestic product (GDP) growth rate was between 11 and 12 per cent and local authorities expect average GDP growth rate of between 12 and 13 per cent from 2010 to 2020. Because of the local government’s effort in improving the city’s infrastructure, including its airport which is the third busiest in Vietnam, Danang has seen an exponential increase in FDI.

We believe the major economic activities in Danang’s flourishing industrial parks, export processing zone, sea port and petrochemical industry will attract more expatriates for both short-term and long-term stays, contributing to the demand for quality accommodation including serviced apartments in the city.

Currently, there is a limited supply of quality serviced apartments in the city. Our expansion into Danang, our fourth city in Vietnam, will allow Ascott to tap on the growing demand for serviced residences. The 121-unit Somerset Danang Bay will be the first international brand of serviced residence in Danang when it opens in 2012.

Do you think there is still room for new development of serviced apartments in Hanoi or Ho Chi Minh City?

There are still many opportunities for Ascott to grow in Hanoi and Ho Chi Minh City as demand for serviced apartments remains strong due to the limited supply of quality accommodation. We are also seeing an increasing number of independent and savvy travellers, who want stylish serviced apartments that offer good value and flexibility in their city stay. Our Citadines serviced residence will be able to cater to this growing group.