Dubai's serviced apartments hold their own

Dubai's serviced apartments hold their ownImage Credit: Supplied

Amidst the steady fall of residential property values in Dubai, one asset class seems to be holding its own — hotel serviced apartments. And even as more projects are launched with this component, they are still able to tap into fresh investor interest, principally Gulf buyers.

In early September, Damac Properties launched a four-tower cluster at Akoya Oxygen, where two of these are to feature as many as 370 hotel-serviced apartments. This continues the developer's steadfast focus on creating sizeable depth within this particular niche, and which will be managed by one of its hospitality arm, Naia. Investors can place their units — priced from Dh440,000 — within the Damac-managed rental pool if they so decide.

Damac is not alone in seeing continued possibilities with serviced apartments. An estimated 7,000 keys are likely to be added in four to five years in Dubai and Abu Dhabi, according to forecasts by Colliers International, the consultancy. Of these, 74 per cent will be developed in Dubai.

''Doha, Dubai and Abu Dhabi hold the largest share of long-stay demand due to the availability of quality supply [internationally branded supply], which is represented by business travellers on assignment and relocating families,'' the report states. ''The GCC is expected to witness considerable growth in serviced apartment supply — however, it is important to develop products suitable to both business travellers, relocating families and leisure GCC families.''

According to an industry source, serviced apartments have historically had a higher yield than standalone residential units. This is also borne out from the higher selling prices they command.

''Branding of such hotel apartments [Address, Viceroy, etc.] clearly adds to the return potential of such apartments, but equally such investments have higher management fees as well,'' the source said.

''The best way to look at serviced apartments is to frame [them] as a macro-bet on the continued viability of tourism growth in Dubai. Clearly the city is betting on the fact that tourism will continue to grow at aggressive rates, and the serviced apartment space is perhaps the 'purest play' to capitalise on this growth trajectory.''

But ''with the influx of serviced and hotel apartments, the demand-supply mismatch from an investment accessibility perspective is expected to reach more of an equilibrium,'' the source added.

According to Colliers, Dubai has the highest number of serviced apartment keys (in excess of 29,000) among Gulf states, of which 36 per cent of which are managed by international operators. The remaining are represented by locally branded and unbranded establishments, each accounting for 28 and 36 per cent, respectively.

Freshly-minted hospitality groups are also trying to get a piece of the action.

''While the segments may vary, the fundamentals of hospitality remain the same in professionally managed hotels and serviced residences,'' said Jai Sreedhar, vice-president for development at Aiana Hotels & Resorts, which is a joint venture between Qatari and Indian business groups.

''We see a lot of potential going forward in the serviced apartments segment... we believe the need for professional expats to travel globally and stay for extended periods [is] growing at a rapid pace. Professionally managed residences that provide a genuine 'home away from home' experience will grow rapidly.''

Fact box: Rest of Gulf markets could do with more serviced apartments

* According to Colliers, the current supply of serviced units outside of Dubai remains limited. Of the ones that are there, the majority are managed by unbranded and locally branded operators and ''lack international operational standards''. ''This highlights the opportunity for international operators to enter the GCC serviced apartment market with establishments comprised of a larger number of keys than the current market averages.''

* In Dubai, of the 29,000 serviced apartment keys, 36 per cent are managed by international operators.

* During 2014, the highest occupancy levels were achieved by properties in Doha, with figures in the range of 80 per cent plus. Dubai recorded a decline of 3.3 per cent in occupancy levels during 2014, with a market average of 79 per cent, according to Colliers estimates. ''This is attributed to the decline in the rouble and euro in 2014, as well as the influx of new serviced apartment supply that year.''

* According to market sources, apart from those properties in signature locations such as the Palm, Downtown Dubai Marina, there were also higher occupancy levels — and returns for investors — in less popular tourist locations such as Sports City and Jumeirah Vilage. ''The return differential has been as much as 20 per cent this year, suggesting both an increase of budget travellers as well as a beneficial impact of the lower prices that these properties were sold at.''

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Source: Manoj Nair, Associate Editor,


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