Hotel residences: A more refined offering

After a crazy decade, the urban residential sector experienced its first crisis in 2009. A noticeable slowdown, since the sector had become accustomed to insolent growth rates. Blame it on the economic climate, of course, which limited business travel, the main target for urban residences. But it was also due to developers who too often analysed the feasibility of a project solely from a property angle.

Depending on the operator, the decline in sales is between 5 % and 10 %. "However, it is less marked than in the hotel sector," notes Stéphane Botz, head of KPMG's tourism and leisure division. With their in-room kitchenettes and à la carte services, urban residences are an ideal substitute in times of crisis, as companies can save on meal bills. What's more, the product is in tune with the times and meets the needs of tourists, but especially business travellers. The latter, tired by travel and restaurant dinners, appreciate "feeling at home" in flats that are larger than a hotel room, where they can also work and entertain. For their part, companies which, as a result of globalisation, have more and more missions and training courses lasting several days or weeks, are keen to benefit from sliding-scale rates - generally from the seventh night onwards, then the 28th - which are added to the volume discounts offered under corporate agreements.

This match with demand is prompting operators to continue investing on a massive scale. "We count 336 urban establishments, compared with 250 last year", confirms Pascale Jallet, General Delegate of the Syndicat national des résidences de tourisme. So much so that they now account for 15 % of beds in residences nationwide. Admittedly, a large number of programmes were launched before the onset of the crisis. But the crisis has not discouraged the players, just curbed some of their enthusiasm. "We have gone from an emerging market to a structured one, with an increase in the number of beds and a reduction in the number of operators. But it is not yet mature," sums up Philippe Piat, Chairman of Appart City.

Three-star competition

It is in the three-star segment that the battle promises to be fiercest, with the arrival of Hipark (see box). This arrival is all the more remarkable as it follows that of Adagio, three years ago. The result of a 50/50 joint venture between Accor and Pierre & Vacances, Adagio is benefiting from the strength of its two shareholders to establish its brand and pursue its development. The group opened six establishments last year, increasing its portfolio to 29 residences in France and Europe. This momentum enabled it to post growth of 14 1TP3Q. However, on a like-for-like basis, the Group recorded a decline of 3 % to 4 %, due to the combined effect of a fall in the occupancy rate and a reduction in prices, necessary to sustain demand. "The start of 2009 was very difficult, and the summer was stable. But since October, we've seen a recovery that looks set to be confirmed in 2010", explains Laurent Basnier, Managing Director, who is aiming to have 70 residences in Europe by the end of 2013.

Adagio's strategy is geared towards long stays, so as not to overshadow its shareholder Accor. The average length of stay in its establishments is seven nights, with half of its business clientele staying for more than 27 nights. Having succeeded in breaking into the large corporate sector, the brand now intends to convert SMEs to its cause. It is preparing an innovative product: a 'package' of 100 or 200 nights at an attractive rate that companies can pay for in advance and use as they wish.45 % of business comes from tourists, who are located in town centres and help to balance the business, particularly during the holiday period.

Associated services

Leisure customers are the business of Lagrange and Odalys, two specialists in tourist residences who are announcing developments in urban areas. Here too, in the coveted three-star niche. And they have a major advantage: their expertise in property management and commercial operations.

Lagrange opened its first two Lagrange City residences in Boulogne-Billancourt and Strasbourg in 2009. Montpellier will follow in 2010, then Lyon in 2011. "We don't have any specific targets. We'll take advantage of opportunities, both in France and in Europe, while remaining demanding when it comes to locations," explains Line Baudu, Managing Director. To make the difference, Lagrange is emphasising quality services, such as a swimming pool or spa as often as possible. In addition, the group is setting up a sales department dedicated to business customers, with the intention of mixing leisure and business, short and long stays.

Odalys is looking to diversify in the same way, having opened Odalys City establishments in Nîmes, Nice and Lyon, with Dijon and Colmar to follow in 2011, as well as Strasbourg, Toulouse and Marseille. Like Lagrange, Odalys says it is ready to seize every opportunity in Paris, even if the price of land in the capital makes setting up operations more complex. "We want to have around twenty residences in the medium term," explains Sylvain Briot, Development Director. What's new is that Odalys intends to use estate agents to market long-term stays, and is banking on its strong presence in works councils to attract travellers from these same companies.

"This fierce competition is a good thing, as long as it remains healthy, because even if the offer is developing, the product still needs to make itself known", says Alain Ferracani, vice-president of sales and marketing at Citadines. The subsidiary of Singapore's Ascott International group is a pioneer, having opened its first residence in France in 1984. Despite its strong reputation, the chain posted a 9 % decline in business last year. "It was a lacklustre year, after 2007 and 2008, which were excellent. With 33 residences, including 16 in Paris, France is no longer a priority. In future, we will be expanding more in Asia, but also in Europe, where we manage ten establishments", adds Alain Ferracani.

Prime locations

While there are no new developments in France, Citadines has embarked on a renovation programme in recent years, with more contemporary decor, new bedding and the installation of free Internet access. The chain has also reviewed some of its services, lowering the price of daily cleaning from €20 to €5. For its part, Adagio includes this service in its basic price. A way of stepping a little further, like its competitors, into the territory of traditional hotels. Even if all the operators deny this, explaining that their services are limited compared with those of hotels. However, Citadines' short-stay offer is all the more competitive given the company's prime city-centre locations. This is enough to convince both business travellers (60 % to 70 % of the business) and tourists.

The big story of the next few years for the Ascott group could be its arrival in European capitals with the five-star Ascott brand, and particularly in Paris, where there is still a shortage of top-of-the-range urban residences. The Frasers Hospitality group, which has a presence at La Défense and on the Champs-Élysées with Le Claridge, is occupying the field in the company of a number of independents, such as the new Villa & Hôtel Majestic inaugurated in February, near the Arc de Triomphe. The establishment is testing a novel concept combining 27 flats with kitchenettes and 27 'classic' rooms. This market, aimed at senior executives, could prove attractive to other operators. "I'm thinking about a project for a new, more upmarket brand, which could come to fruition this year," says Philippe Piat of Appart City. Thanks to its low prices, which are appropriate in times of crisis, his company posted growth of 32 % in 2009, achieved with a scope increased by 22 residences in two years. "On our establishments over three years old, we are still posting growth of 6 %", he says.

Reaching critical mass

With 51 two-star superior residences under its belt, most of them in medium-sized towns, the subsidiary of the Menguy Investissements group intends to be a real troublemaker. It has set its sights on 140 residences in France and Europe by 2015. To raise its profile, in early 2009 it changed its name from Appart City Cap Affaires to Appart City. Its priority target remains companies (70 % of the business), with an average stay much longer than that of its competitors, between 15 and 17 days, with nearly 600 companies under contract. Even though in times of crisis, leisure customers have been a welcome boost to occupancy rates, thanks to a website that already accounts for 30 % of sales. The brand lacks a strong presence in Paris, where it currently has just one outlet.

My Suite Apparthôtels has also just changed its name to Park & Suites. And it's moving up a gear. A subsidiary of the Montpellier-based Suites Résidences group, it has seen its portfolio grow from 18 to 44 residences in less than a year, thanks to the takeover of establishments whose managers had gone bankrupt. On a like-for-like basis, however, its sales fell by 7 % last year. It was important to achieve critical mass," says Bertrand Hervé, Business Development Director, "and we have seized opportunities in a market that has entered a phase of consolidation, but which still has great potential. He is counting on both organic growth and new acquisitions to help us pass the 50 residences mark this year. Concentrating on the corporate market, which accounts for 90 % of its business, the group - unlike its competitors - has a heterogeneous offering, now headed by the umbrella brand Park & Suites. It is then broken down into Prestige for the four-star residences, Élégance for the three-star and Confort for the two-star. "This brand will enable us to communicate more effectively, and in particular to improve our Internet referencing," adds Bertrand Hervé.

Propose a standard formula

While Park & Suites has been able to take advantage of the opportunities offered by the crisis, the same cannot be said for Residhôtel. The brand had to sell off 17 leisure residences last year, as the management subsidiary that oversaw this activity had to implement a safeguard plan. "Our 14 urban establishments are attached to another management company and are not affected", reassures Alexandra Deygas, Marketing Director. As a result, development projects have been put on hold. To regain the upper hand, Residhôtel wants to develop long stays to ensure a minimum occupancy rate, given that the average stay in its establishments is just two nights. "To this end, we have set up a corporate sales team to approach key accounts," adds Alexandra Deygas. To win them over, however, you need to offer a broad and, if possible, standardised package. This is not necessarily the case with Residhôtel, which markets two- and three-star units.

This product is standardised, and that is precisely Citéa's strength. With over 60 two-star residences, Citéa is the market leader in terms of number of establishments. Its simple concept is more akin to a traditional hotel than an urban residence. In fact, more than 60 % of customers only stay for one night, and very few dare to cook in the small kitchenette! However, with its low prices, the formula is attractive to companies looking for an entry-level product for their employees on training courses or their sales staff. It's a standardised formula that's proving particularly popular in times of crisis. Needless to say, the brand, owned 50/50 by Pierre & Vacances and Gestrim, still has a bright future ahead of it.

Landmarks

(Source: KPMG and SNRDT)

• 336 Urban residences at the end of 2009
• More than 30,000 flats (+110 % from 2003 to 2009)
• Average capacity per residence: 90
• Average occupancy rate: 66 % in winter 2008-2009 compared with 73 % in winter 2007-2008
• Share of business customers: 70 %
• Average length of stay: 6 - Average price per night (in two- and three-star hotels): €107 in the Paris region, €53 outside Paris (end 2008)