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More disruption ahead for hospitality sector

THE government's move to halve the minimum rental period for private homes from six months to three months appears to be a middle-of-the-road approach to meeting clamouring demands from different camps. Despite what some see as a measured move, there are sombre implications for incumbent hospitality players.

Singapore is not alone in reviewing its rules as cities globally are doing likewise in light of the pervasive use of home-sharing platforms like Airbnb and Homeaway.

While the revised rule satisfies those who want to lease their units for shorter periods, it falls short of allowing them to rent out on a daily or weekly basis. The revision could have, of course, been more drastic than this but such a line of reasoning is of cold comfort to serviced residence operators and hotels here.

The consumer ultimately benefits. The latest regulatory move, in effect, carves out another option for those requiring accommodation for three to six months - if they feel they do not require the full services of hotels and serviced apartments.

But for the already fragmented accommodation industry, some questions hang in the balance.

Will the increased supply of medium-term housing be matched by an accompanying increase in demand? Will the service and product differentiation of branded serviced apartments and hotels continue to keep them from losing customers to cheaper options?

BT's checks with some hospitality players here found that their clients' average length of stay for serviced apartments - which require a minimum stay of seven days under Singapore rules - is around three months.

For Far East Hospitality Trust (FEHT), the majority of bookings have a length of one to three months at four Singapore serviced residences. It also has other corporate and project group bookings for these properties for longer periods. Similarly, the three Singapore serviced residences of Ascott Reit have seen an average length of stay of three months.

As for Frasers Hospitality's Singapore serviced residences, the average length of stay for Fraser Suites and Fraser Place is about six months, with 60 per cent of stays being one month and above.

Prima facie, these hospitality players will likely face increased competition from private rental homes. That said, the earnings impact on most Singapore-listed hospitality trusts is cushioned by their well-diversified global portfolio, as overseas assets account for the bulk of their income.

Common observation

But as corporates globally tighten their belts, a common observation among industry players is that relocation tenure of a typical two- to three-year employment contract is increasingly replaced with shorter-term contracts of less than a year.

There is growing demand in recent years from groups including academics, visiting students and professionals on work assignments, said Singapore's Urban Redevelopment Authority (URA) when it revised the minimum rental period for private housing in June. The feedback from those groups was that they prefer private residential properties, considering their choice of locations, range in unit sizes, and financial affordability, over hotels and serviced apartments, URA said.

Changes to Singapore's housing rental guidelines may not stop here. The URA is also studying the option of creating a new category for private residences whose owners wish to engage in short-term rentals.

As at June, there were some 28,888 vacant private residential units here, with the vacancy rate holding up at 8.1 per cent, based on URA data.

Individual owners will probably find it hard to upkeep their units and provide good services. But throw in a managing agent to assist, and this becomes a product with limited services that may offer an alternative to the more costly full-serviced branded serviced residences and hotels.

For a while now, there are a number of little-known boutique firms that call themselves corporate housing providers and they tap private properties held by individual owners or companies. Such firms take care of styling the apartments, viewing and leasing, and provide services like housekeeping. In exchange, they charge owners property management and marketing fees.

Among them, Singapore start-up Metro Residences claims on its website that its listed properties are 40 per cent more affordable than branded serviced apartments and hotels. Property owners also earn 30 per cent more income compared to traditional rental. It says it has 500 corporate customers and clocks 85 per cent occupancy for the properties it manages.

Of course, these corporate housing offerings are no apple-to-apple comparison with branded serviced apartments, which require a higher level of detailing and building specifications with active management, full services, and compliance with safety regulations.

Challenge to assumption

Also, hospitality incumbents have held the view that many corporate travellers, especially those on mission-critical assignments, are not willing to give up the comforts of security, peace of mind, and reliability of services from branded serviced residences and apart-hotels. But this assumption will be further tested and challenged as disruptors look to upend the traditional model and scale up their offerings for travellers seeking quality and value.

Airbnb, which started going after business travellers in 2015, has a tie-up with corporate housing expert BridgeStreet Global Hospitality to offer its inventory of corporate apartments on its platform. In its July 2017 release, Airbnb said that business travellers now account for nearly 15 per cent of nights booked on its platform.

Cognisant of the evolving landscape, some established serviced-residence operators have already jumped onto sharing economy platforms. The Ascott has tied up with Tujia, the Chinese equivalent of Airbnb, to list its properties on the platform and to operate serviced apartments in China under the new Tujia Somerset brand to cater to middle-class travellers.

The Ascott also lists its properties on Alibaba's online travel service Fliggy. Our penetration of the Chinese market both offline and online is already contributing to Ascott's business worldwide, says The Ascott chief operating officer Kevin Goh. The Ascott also recently introduced a new brand Lyf, a co-living concept targeting millennials that form a quarter of Ascott's customers.

While branded serviced apartment operators maintain that they are not losing market share yet to Airbnb nor seeing an impact from URA's reduction of minimum rental period for private homes, the disruptors they contend with aren't sitting still as they step up their game with better product and service offerings. How far disruptors like Airbnb can cut into the business travellers segment to pose an existential threat to hospitality incumbents will be closely watched.

One would argue that it may be a matter of time for the business travel industry to be disrupted by the same forces at play in the leisure market. In this fluid environment, what is clear is that branded accommodation providers have to be much more nimble, leverage the distribution platforms, and engage its target audience in order to stay relevant. More disruptions down the road await them.