In Ho Chi Minh City (HCMC) and Hanoi today, the biggest challenge is getting a hotel room, not to mention a serviced apartment. "There are many days when our properties are running at 100% [occupancy], and even I can't get a room," says Henry Lim, country general manager for Indochina at The Ascott International Vietnam, which is part of CapitaLand's serviced apartment arm The Ascott Group.
The 90-apartment Somerset West Lake in Hanoi is only 10 minutes from the business district of Hoan Kiem. Nearby are also shopping areas and international schools.
Today, Ascott is the largest serviced apartment operator outside of the US. There are currently 136 Ascott properties, with 19,200 apartments, in major gateway cities around the world. The target is to raise the number of properties to 180, with over 25,000 apartments, by 2010.
Ascott and its serviced apartment real estate investment trust (REIT), the Ascott Residence Trust or ART (listed in March last year), collectively own and manage four properties in Vietnam — two in Hanoi and another two in HCMC. There is a third property each in the pipeline in both cities, bringing the total number of properties to six and the number of apartments to 1,050. The target is to double the number of apartments to 2,000 by 2010, says Ascott's Lim.
For the Ascott group, Vietnam is one of the fastest growing markets (if not the fastest) in Southeast Asia in terms of RevPAR (revenue per available room or apartment), notes Lim. He cites the following reasons: "Demand is overwhelming, and CapitaLand has a strong foothold here. We are also the largest serviced apartment operator in Vietnam, and the focus is on these two key cities."
The company entered the market in 1994. Its flagship property in Vietnam was the Somerset Grand Hanoi, which opened in Hanoi in 1997, and in HCMC, it was the Somerset Chancellor Court, which opened a year earlier.
Apart from the Somerset Chancellor Court, which has 172 apartments, the other existing property in HCMC is the 165-unit Somerset Ho Chi Minh City. Both properties are owned by ART but managed by Ascott. A third, which will be opening in 1H2009, is the 232-unit Somerset Saigon City, which will also be managed by Ascott when it opens.
In Hanoi, apart from the flagship 185-unit Somerset Grand Hanoi (which incidentally is also owned by ART), there's the 90-unit Somerset West Lake Hanoi, which is owned and managed by Ascott. A third, the 206-unit Somerset Hoa Binh, will be opening in 2H2008 and will also be owned and managed by Ascott.
Ho Chi Minh City: Strong demand, limited supply
The two properties in HCMC are located in the heart of the CBD in District 1. The Somerset Chancellor Court completed a US$5 million (RM16.7 million) makeover in January. The 11-year-old property originally had 152 apartments. Many of the large three- to four-bedroom apartments were reconfigured into studios and one-bedroom apartments, hence adding 21 rooms to the total stock, bringing it to 172 units.
Today, 80% of the rooms are studio and one- or two-bedroom apartments, which are the most-sought after units among business travellers. The lobby was also upgraded to give it a corporate feel and the gym was expanded to add more equipment including a sauna and steam room. In the next phase of renovation, it plans to upgrade the swimming pool area and add a putting green for the enjoyment of residents who are golfers.
Although the bulk of its residents are long-term guests of at least six months, 23% are short-term stays of up to a month, says Richard Chua, area general manager for HCMC at Ascott International.
Next to Somerset Chancellor Court's serviced apartment, the company has a five-storey, 4,600 sq m tower office building. The building is fully tenanted, and is currently considered to be a Grade-B-plus building, says Chua. The lobby is currently being refurbished in keeping with the high-end brand of the property, he adds.
While the Somerset Chancellor Court is targeted at business travellers, the Somerset Ho Chi Minh City, less than a five-minute drive away, feels more homely and appeals to families. The 165 units are spread out in three 12-storey residential blocks. There's a playground and a huge resort-style swimming pool. There are currently 144 children among the residents in the property, says its resident manager and Singaporean Andy Ng.
The Somerset Ho Chi Minh City is a decade-old, but very well-maintained and does not need a major face lift. However, next year, there are plans to update the soft furnishings in the lobby and the apartments.
Ascott's Lim estimates that 85% of the residents in both properties in HCMC stay at least six months at a time. Today, both properties still command one of the highest rates in town, and are almost on par with five-star hotels in the city, which are asking for US$138 to US$140 a night, he says.
Limited supply, strong demand
There's overwhelming demand for serviced apartments, particularly in the CBD Districts of 1 and 3, says Marc Townsend, managing director of CB Richard Ellis (CBRE) Vietnam. There's very limited supply, especially of international-quality projects, with only seven Grade-A serviced apartments providing 400 units ranging from one- to four-bedroom units. According to Townsend, the average occupancy rate of serviced apartments is 97%, with the most sought-after being one- and two-bedroom units measuring 50 to 80 sq m.
Rents of serviced apartments are up by 12% to 20% from US$25 to US$33 psm per month in December last year to US$28 to US$30 psm per month in 2Q2007, estimates CBRE Vietnam. "Due to the limited demand and strong supply, rents will keep rising this year," says Townsend.
The supply demand dynamics probably explains why three of the existing four Ascot properties in Vietnam were injected into ART's initial portfolio of 12 properties in Asia. ART's 3Q2007 results released last week showed revenue in its Vietnam properties had jumped 50% or $2.8 million compared with 3Q2006. This increase was attributed to the inclusion of Somerset Chancellor Court in the portfolio and the higher average daily rates achieved while maintaining occupancy above 90%.
As for year-to-date performance, for the first nine months until end-September, Vietnam's revenue was up 76% to S$22.2 million (about RM51.2 million) compared to S$12.6 million the same period last year. And gross profit for the first nine months of this year was at S$13.6 million or 77% above the S$7.7 million achieved over the same period last year.
With both Hanoi and HCMC seeing strong growth and a continued flow of international funds and MNCs entering the country, there are plenty of opportunities for Ascott. In the pipeline are plans to introduce the other two Ascott brands in Vietnam, namely the top-end The Ascott and the mid-tier Citadines. "We are still exploring," says Lim. "Timing is important and finding suitable sites is a top priority."
By The EDGE MALAYSIA (By Cecilia Chow) - Cecilia Chow is City and Country editor at The Edge Singapore
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