The trend for branded residences is continuing to accelerate, as investors spot the value in selling apartments off plan, boosted by brand association.
Hotel brand groups are broadening their base of branded residences, expanding their market presence from pure luxury to other brands lower down their portfolio. And they are now being challenged by other consumer-facing brands, convinced they can extract value from branded real estate sales.
“The benefits of a branded residence appeal to everyone,” said Chris Graham, of Graham Associates, who has recently published his latest review of the sector. The concept is now spreading downmarket to non-luxury hotel brands. And even non-hospitality brands are trying their luck, including musicians and luxury car marques. According to Savills, more than 100 schemes launched in 2020, and the number of brands in the space is likely to grow from around 130 currently to 170 within the next three years.
The phenomenon is strongest in the US and Asia. “Miami, Dubai and New York remain the top three cities for branded residences globally,” report Savills. “As the sector continues to diversify globally a number of new growth hotspots are emerging. Fast growing countries include Egypt, Vietnam, the UK, Morocco, Malaysia, Australia, and Saudi Arabia, amongst others.”
Industry leader Marriott is growing its branded residence portfolio across a range of brands in its portfolio. The offer stretches from its high-end luxury Ritz-Carlton brand, to Sheraton, Delta and Westin, all offering a combination of unit ownership alongside hotel-style support services.
In January 2021, the group signed the world’s largest branded residence project to date, in Vietnam. There, a 4,200-unit project in Ho Chi Minh will include Marriott and JW branded properties for sale, which local development partner Masterise Homes will deliver in 2024.
Paul Foskey, Marriott’s chief development officer, Asia Pacific said the signing “underscores the strong appeal of the branded residences segment, especially within the Asia Pacific region.”
Some of the units will be marketed as “officetels” – aiming to draw in investors who want a place to work from, not just a leisure offering.
Graham says all the evidence is that branded residences sell faster, and for higher prices, than non-branded apartments. The brand lends credibility, and will generally ensure a private investor has a liquid market to sell on, should they need to. More and more buyers, now around 80%, opt to put their asset into a rental pool, where the hotel management rents out the unit when the owner does not require occupancy.
With branded residences generally selling to higher net worth buyers, Covid did little to blow the niche off course. “There has been a flight to quality during the pandemic,” said Graham, pointing to strong sales at the new W in the Algarve, where half of the units sold within three months of launch. And that ability to sell quickly, often off plan, is in some cases used to help finance the development of a co-located hotel, transforming the cashflow of the regular hotel development process.
“One trend that has come out of the pandemic is that access to outside spaces is important, and access to workplace,” said Graham. Also new is the concept of the standalone branded apartment development, allowing a hotel brand to win a presence in a market that might not suit one of their mainstream properties. It can also be easier to win consent for a residential-oriented project, rather than a hotel, in some jurisdictions.
Luxury brand Rosewood, for example, has just signed its first standalone site in Lido Key, Florida, joining a pipeline which sees half of its new hotels having branded apartments as part of the project. Developer Ronto Group will deliver a mix of 65 villas and apartments for sale.
Graham says that while the market is strong and broadening, competition is increasing. “Differentiation will be the key – sticking a brand above the door isn’t the magic wand it use to be.”
Also, for the future, believes Graham, is a shift into sub niches such as elder living. Already “there are some brands building retirement communities, and the model is quite doable – it’s an opportunity waiting to happen.”
HA Perspective [by Chris Bown]: So long as there are cash-rich consumers happy to buy into the brand story, the branded residences pipeline looks strong. As those who study the niche point out, its strongest appeal is in the US, Middle East and Asia, where brands have strong consumer appeal.
What does appear clear, is that the purchase is less a rational one, more an emotional one. Sure, buyers expect their asset to increase in value, but once expenses are paid, net returns are not such that professional investors are diving in. The market looks set fair, so long as the brand’s star continues to rise.
Additional comment [by Andrew Sangster]: In this space I could simply write the same comment I made in our article this week on the administration of The Collective: execution risk matters even if the segment is more resilient than most. Branded residences offer many advantages but they can still go wrong.
All that said, just like extended stay / co-living, branded residences are turning into a profitable niche. Marriott is just ahead of Four Seasons in terms of number of schemes on the Graham Associates data. Three years ago, Marriott announced it was seeking to grow its branded residential portfolio by more than 70%, led by Ritz Carlton.
The 2016 acquisition of Starwood added St Regis, W and Westin to its portfolio of luxury brands that suit such projects. And it is not all mixed-use developments, there is a growing number of sites under construction that do not feature a hotel component.
Number two in the study’s top brand list is Four Seasons followed by YOO and then Trump. This is quite the mix.
But the upside for hotel brands is clear, with a licence fee of between 3.5% and 6% on a project plus a residential management fee where the hotelier is so tasked.
As well as Marriott, the other global majors with significant pipelines are Hilton (the eponymous brand and Waldorf Astoria) and Accor (with primarily Fairmont and Banyan Tree). Accor is also working with Faena in projects that are more about creating whole districts than just a building.
It’s not going to be all one way for the hotel brands, however. Chris Graham predicts that price premiums are likely to come under significant pressure in mature markets and this in turn is bound to feed through to licence fees.
And as the niche grows, further competition is likely. Graham says upscale and even midscale will be big areas of growth.
Without wishing to beat our own drum too loudly, the push into segments beyond hotels is something we have been citing for several years now, here at Hotel Analyst. This “hotelisation” of residential real estate is beginning to make serious noise.