Buyers See Value in Serviced Apartments
Such apartments are common in Scandinavian countries, where tenants can rent out apartments of different sizes and prices in multi-flat residential buildings. In St. Petersburg, the company Sato represents this segment with more than 200 apartments in the central part of the city.
According to data from Colliers International, there are currently units for sale in five apart-hotels, three of which were put on the market in 2013. The general capacity of these buildings is about 1,400 units. The prices in elite-class apartments correspond to the prices in residential houses of the same class, while mass-market segment apartments are 10-15 percent cheaper.
The elite Monferran apart-hotel offers apartments from 255,000 rubles ($7656) per square meter. Prices for business-class apart-hotel rooms on Moskovsky Prospect vary from 130,000 to 155,000 rubles ($3,903-$4,654) per square meter, according to data from Colliers International. The other three projects are in the mass-market class of apartments.
"Given the shortage of land appropriate for residential construction, more and more apartments that are legally considered non-residential properties will emerge," said Akinshin.
In St. Petersburg, such apartments are a legal alternative to places where residential construction is forbidden. The Pioneer real estate group, for example, recently offered for sale apartments in the YES complex, which is currently under construction on Prospekt Prosvescheniya.
"For a long-term stay, serviced apartments are more suitable than apart-hotels. The average Russian is more comfortable renting a regular apartment; however, serviced apartments have a number of advantages. First of all, there are a wide range of additional services available: Food delivery, housekeeping, parking and dry cleaning," said Kirill Akinshin, head of the consulting and evaluations department at Maris.
"Another benefit is the security of the agreement. You won't be told at any moment that you have to vacate the premises next month because an owner decides to sell an apartment. Also, the rent is often lower [in serviced apartments] than in the same residential apartments. The owner earns on the additional services," he said.
Such apartments are common in Scandinavian countries, where tenants can rent out apartments of different sizes and prices in multi-flat residential buildings. In St. Petersburg, the company Sato represents this segment with more than 200 apartments in the central part of the city.
According to data from Colliers International, there are currently units for sale in five apart-hotels, three of which were put on the market in 2013. The general capacity of these buildings is about 1,400 units. The prices in elite-class apartments correspond to the prices in residential houses of the same class, while mass-market segment apartments are 10-15 percent cheaper.
The elite Monferran apart-hotel offers apartments from 255,000 rubles ($7656) per square meter. Prices for business-class apart-hotel rooms on Moskovsky Prospect vary from 130,000 to 155,000 rubles ($3,903-$4,654) per square meter, according to data from Colliers International. The other three projects are in the mass-market class of apartments.
"Given the shortage of land appropriate for residential construction, more and more apartments that are legally considered non-residential properties will emerge," said Akinshin.
In St. Petersburg, such apartments are a legal alternative to places where residential construction is forbidden. The Pioneer real estate group, for example, recently offered for sale apartments in the YES complex, which is currently under construction on Prospekt Prosvescheniya.
Maris experts predict that changes in legislation could be introduced that will increase the popularity of such accommodations.
"Rental housing is widespread all over the world. Only in Russia does the stereotype exist that a man should live in his own home. In Europe most of the population rent flats throughout their lives without thinking about having a place of their own," said Skalandis.
"In my opinion, it's better to rent a large, one-room flat for 20,000 rubles ($600) a month than to buy a small studio and pay a mortgage for 25 years. This market will develop as there are lots of residents from other regions, students and businessmen who come to the city, and these types of rental apartments could become a fine alternative to buying properties," she said.
"The YES project offers apartments at 90,000 rubles ($2,702) per square meter, while the average price for a square meter in newly constructed, comfort class buildings in the same district is 105,000 rubles ($3,152). The Salut apart-hotel on Dunaisky Prospect costs 80,000 rubles ($2,402) per square meter, while the average price in other complexes in the same location is about 95,000 rubles ($2,852)," said Elizaveta Conway, the director of the residential real estate department of Colliers International in St. Petersburg.
The Avenue-Apart project in the Petrogradsky district charges 115,000 rubles ($3,452) per square meter, while the average price for residential properties in the same district is 130,000 rubles ($3,903) per square meter.
In Russia this market was born of a stable economic situation, while crisis brought about its popularity in Europe as companies were forced to reduce their budgets for business trips, and tourists had to scout out cheaper accommodations. Hotel chains responded to the changes by offering small apartments with room service that were cheaper than regular hotels for an extended stay.
"The next important factor in the change was when people lost their jobs and could no longer afford to pay their mortgages. The bank foreclosed on their property as a result. People had to search for new accommodations, which ended up being apartments," Skalandis said.
According to data from Maris, the rate of occupancy in apartments in 2009 was more than 60 percent in Europe and 50 percent in the U.S. and Canada.
Another sector of the apartment rental industry has also developed - that of apartment occupants renting out their spaces privately.
To rent out their own apartments, Europeans usually use specialized websites such as Airbnb. Russians have not tapped into this market yet.
"People in Russia are not accustomed to [using such websites] and prefer to have an agent find the best option for them, as they tend to trust people more. But specialized websites will gain popularity and attract users by offering a variety of convenient services," Skanladis said.
Maris analysts note that such resources offer an alternative to expensive hotels, as one can rarely find long-term accommodation there at a significant discount.
"Moreover, these are residential flats that are rented out for a short period without the additional services commonly found in serviced apartments," said Akinshin.
Tenants renting out their apartments through these services should take care to learn local laws and regulations before publishing announcements. Many European and American cities have limitations to lease agreements that can lead unknowing apartment residents into trouble. New York resident Nigel Warren, for example, violated city law in May of this year when he rented out his apartment via Airbnb and had to pay a $2,400 fine, The New York Times reported.
The European apartment market shows slow but continuous growth. Investors do not clearly understand this sector, according to the hotel valuation company HVS London. In Russia the problem is even bigger as there is no legislation that clearly defines apart-hotels, complicating the work of developers, investors and managing companies.
"New offers are limited in this sector because of the political aspect. Developers are afraid that new regulations will emerge that will complicate the creation of similar projects," said Conway.
It is still difficult to determine customer demand in this segment. Colliers International analysts predict that the first projects will face difficulties on the market when competing against traditional residential housing. Success will necessitate more active marketing and the services of well-known consultants, designers and architects.
"I'm sure compact apartment projects [20-, 50- and 80-unit buildings] located in the historical center of St. Petersburg will be in high demand. These could be clubs, apartments in multi-functional buildings or interesting loft projects," said Conway.
"However, I don't see this project developing on a grand scale, due to the significance of social infrastructure for those customers, their sensitivity to future expenses and their dependence on mortgages."
Analysts at Maris are sure that if the average price of residential flats increases, the apartment market will grow rapidly. But St. Petersburg should be prepared to face a problem that has already raised its head in Moscow.
"With the increase in the number of apartment buildings, new service facilities should also be built accordingly. We understand that the law doesn't dictate that kindergartens and schools be built for apartment residents. But the need for these services brought on by massive amounts of construction will have to be taken into account. It may already be too late," said Akinshin.
Analysts at Maris are sure that if the average price of residential flats increases, the apartment market will grow rapidly. But St. Petersburg should be prepared to face a problem that has already raised its head in Moscow.
By Olga Kalashnikova
The St. Petersburg Times