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July 30, 2007

Why serviced apartments aren't finding takers

Business Today's article on serviced apartments posits that their costs need to come down significantly in order to compete with hotels.
Consider the Taj Wellington Mews in Mumbai where a two-bedroom unit could cost between Rs 6,50,000 and Rs 7,25,000 per month, a three-bedroom between Rs 7,85,000-8,25,000 per month and a four-bedroom, Rs 25,00,000 per month-all rates exclusive of the 10 per cent applicable tax. Things at the Lakeside Chalet Marriott Executive Apartments in Powai are no better-depending on the length of stay and the type of apartment, you could end up coughing up $220-420 (Rs 9,020-17,220) per night. And that, of course, does not include any captive services you might avail of-laundry, telephone and restaurants. So then, if you are paying the price of a five-star deluxe hotel, why not stay in a full-service hotel? Especially when, as Chidara says, you cannot make the slightest change in the d├ęcor of the apartment, which in any case intimidates his friends and relatives for its hotel-like ambience. "You certainly don't get the feeling that it's your home," he observes.

...serviced apartments need to rationalise their tariffs-currently, they are 10-12 per cent cheaper than hotels but need to be 25-40 per cent cheaper to attract clients who might be drawn to discounted hotel rates. In fact, that is one of the main reasons why serviced apartments have not been able to garner a major share of long-staying guests. If they try to move far too down the price range by limiting services, they find themselves pitted against operators of conventional limited-service hotels. Move up with more bells and whistles, then they go head-to-head with all-suite hotels or the high-end category of rooms in luxury hotels. And given a choice between limited and full service at comparative prices, it's a no-brainer as to where a guest would rather be.

Arun Natarajan is the Founder & CEO of Venture Intelligence, the leading provider of information and networking services to the private equity and venture capital ecosystem in India. View free samples of Venture Intelligence newsletters and reports.