The Serviced Apartment sector is feeling pressure, particularly as their main occupants are foreigners, the majority of which have returned to their home countries. Buy to let investors will also compete for the same tenant pool. Once borders reopen then this asset class will recover quickly.

Performance Serviced

Apartment average occupancy fell to 74% decreasing -8 ppts QoQ and -11 ppts YoY. Grade A was hit hardest, down -13 ppts QoQ and YoY. A Grade A project opened in January at 14% absorption, the lowest entry performance in five years. Total supply was up 2% QoQ to approximately 4,700 units, from 52 projects.

Despite short-term issues, average long-term rents had slight adjustments 1% QoQ and 6% YoY. While the West and Secondary areas were stable, or up 1% to 3%; the CBD and remaining areas eased -1% to -4 percent. In March with Covid-19 taking hold, some operators reduced offers by -10% and provided free service vouchers.

Struggling Industrials

In March 2020, The General Statistics Office of Vietnam (GSO) reported the Index of Industrial Production (IIP) rose 5.4% YoY, following 23.7% YoY in February and -5.5% YoY in January. Of the IIP criteria, water supply output and waste treatment increased most at 9.5% YoY. The Purchasing Managers’ Index (PMI) of Vietnam plunged from 49 points in February to 41.9 points in March, its lowest level since 2012. This was attributed mostly to China supply chain delays, purchasing decreases and tightened inventories.

Expatriates working in IPs are a major long-term Serviced Apartment demand source. With labor-intensive operations and multiple shared common spaces, industrial parks (IP) in Ha Noi and surrounding provinces Bac Ninh, Bac Giang and Hung Yen have been vulnerable to Covid-19. Despite being authorized to operate during the lockdown, manufacturers face operational issues once an infection is discovered.

Larger Units: Longer Terms and Better

Leases Larger units, from 3-bedroom and above, had good occupancy. There are no 5- or 6-bedroom units available; 3-bedroom are at 88% absorption and 4-bedroom, 86 percent. Increasing 1-bedroom supply responds to the preference over studios. In 52 active projects, 1-bedroom units are 45% larger than studios, being 22% higher in rent and generate 44% higher RevPAR for operators.

Grade A occupancy was affected the most after travel restrictions are imposed. Daily bookings had -20 ppts QoQ drops in leases over Q4/2019. Before the pandemic, 90% of Grade A operators accepted monthly leases and 35% of occupants stayed short term. When the situation eases, operators may change business strategies to focus on traditional lease terms. According to ‘The Global Serviced Apartments Industry Report 2020-2021’, the sharing economy (e.g. Airbnb), presents less challenges. Implemented since 2018/2019, Economic and Regulatory/Planning Controls, have negatively affected Serviced Apartment operators.

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