The growth of branded residential has been on an upward trajectory for some time – growing 230% in the last decade, according to Savills – and the market is forecast to exceed more than 900 schemes by 2026, almost doubling supply.
The pandemic has arguably accelerated that growth, leading to more visibility for the segment, as more people stayed in these types of properties, said Dimitris Manikis, President EMEA, Wyndham Hotels & Resorts.
When it comes to the value a brand can bring to the residential component of a mixed-use development, this is less easily pinned down by figures. Brands of course can bring guest loyalty and trust, and their knowledge of a market can be particularly useful if a buyer is investing in an unfamiliar location. They can offer global sales and marketing reach, as well as operational efficiencies. And owners often have access to the services and facilities of a hotel within the same development.
“Travellers choose a brand due to its recognition and knowing the level of quality and comfort they can expect, from its design, amenities and security as well as elevated services such as housekeeping, in-room dining, spa and fitness facilities,” said Manikis.
Demand for branded residences, both those located within a mixed-used development and standalone, continues to grow both from purchasers and developers, confirms Jaidev Menezes, Regional Vice President, Mixed-Use Development (EMEA), Marriott International. Marriott comfortably remains the top operator of branded residences with more than 105 properties under 16 brands across 20 countries.
“We are seeing a lot of purchasers buying second, third, or fourth homes and purchasers are spending more time in these homes than they did before,” he said.
Marriott’s brands, he argued, can attract higher sale prices, faster sales velocity, as well as brand and operating model flexibility. He said the group is seeing “robust” growth across its luxury brands such as St Regis, Ritz-Carlton, EDITION, and W Residences, but also increasing demand for premium brands such as Marriott, Sheraton, and Westin Residences.
He added that owners are looking to build with the intent to sell and make a premium with the brands, knowing that consumers are looking for more space and more exclusive shared area facilities.
Philip Bacon, Senior Director at Horwath HTL, said: “[Branded residential] should be more profitable, because you’ve got a wider range of customers, a captive audience and you can absorb overheads across that range.
“The branded operator should be able to generate a premium on the rooms business because of the quality of their service and distribution systems and global reach. And it’s true, they can achieve those efficiencies, and therefore there is a premium quality to that which adds value to the whole operation… there is no denying that there is potential for creating competitive advantage in a marketplace.”
Savills has estimated that branded residences can command a premium of approximately 29% compared to unbranded. However, Bacon argues that the value of the brand is “virtually impossible to quantify”.
“What you’re doing is comparing a branded product with the generality of products in the area, which are different by definition,” he said.
He urged investors to talk to brands about how they will help create value and market the property. “It’s called a licence fee but there needs to be something behind it that demonstrates that you know what you’re doing and can help me,” he said.
“In the end, the price that people will pay is the price they can afford to pay and they’re willing to pay,” he added. “If you can’t sell it then the whole thing falls apart, your brand premium argument disappears.”
A large part of the brand premium, meanwhile, is ensuring the brand is right for the property, the market and consumer – you won’t be able to demand a brand premium from a customer that doesn’t perceive the brand value, suggested Bacon.
Deciding on a brand
“It is important for developers to ensure that their chosen brand partner not only reflects the demographic profile and lifestyle aspirations but also is complementary to the location and culture of the market,” said Manikis.
“Additionally, and perhaps most importantly, the developers need to guarantee a certain level of value added to the properties whether from experiences, management, or amenities associated with the particular brand. Moreover, a brand that is not only recognised and respected, but also provides high quality of services, can assist developers to command high price premiums.”
Added Menezes: “Identifying the most appropriate brand depends on the local market, source markets and target customer lifestyle preferences to determine which brand will drive the most revenue for that developer.”
The site itself and planning permission will to a large extent define which brand standards the residence can meet, followed by the location. Identifying the gaps and opportunities and – if it’s a developed market – the brands that are already there, will narrow down the options.
“By the time you get to decide branding, you should be clear about the opportunity,” said Bacon.
The future of branded residential
North America accounts for 35% of the total supply globally of branded residences and 28% of supply over the next five years, with brands also expanding rapidly into Asia Pacific.
In comparison, Europe’s branded residence market and pipeline is less developed, partly due to stricter planning regulations and higher land costs, suggested Bacon.
However, through a collaboration with CLC World Resorts & Hotels, Wyndham rebranded 12 properties last year in Spain, the Canary Islands, Turkey, the UK, and Austria under its Wyndham Grand Residences, Wyndham Residences, Wyndham, Ramada Residences by Wyndham and Ramada Hotel & Suites by Wyndham brands.
“It’s only the beginning,” said Bacon. “The availability of good land and properties has been a constraint on the industry for a while now… [but] if you look at the availability of residential apartments and villas, not hotels, there’s hundreds and hundreds of them, all sitting there, more or less under the wire. They may well be on Airbnb or Booking.com, one or two units, and not particularly visible. I think there’s an opportunity there to create critical mass and to start consolidating things from an operational point of view.”
Although developments in mature markets are often forced into the luxury market purely by the price of the land, new names have entered the branded residence scene over the last five years, evolving out of the ever-expanding hotel lifestyle marketplace.
It makes sense – there are far more people who can afford budget or midscale residences than luxury. “In between those two extremes you have a whole world of people to aim at, and this is what is happening. It will happen,” said Bacon.
The Savills report claimed that while the sector was still led by luxury brands, there was “significant opportunity” in the upper-upscale, upscale, and non-hotel segments, with upper-upscale “leading the pack in terms of pipeline growth”.
With demand growing along with investor appetite for branded residences, the geographical expansion of the segment, increase in branded offerings and market opportunities look promising – but it will be up to the brands to prove their value to investors.
Interested in finding out more about the branded residential market? Come join us in Portugal for the Resort and Residential Hospitality Forum.
On Tuesday, October 18 between 3:25pm and 4:00pm PDT we will be running a session entitled: Branded Residences - The Facts behind the New Must-Have in Leisure Developments