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Insight Comment |
Aston Martin. Baccarat. Porsche. Versace. Aside from being ultra-luxury brands, what do these companies have in common? All have lent their names to branded residences.
Branded residences emerged as a real estate market segment about 20 years ago, when hotel brands started creating mixed-use developments. Adding a residential element to hospitality projects made it easier for developers to get financing and more immediate return on investment while simultaneously benefiting from a long-term revenue stream on the hotel side.
For hotel companies, branded residences were a natural brand extension for luxury groups like Four Seasons and Ritz-Carlton, trading on a tradition of hospitality, service and high-end amenities. After all, who wouldn’t enjoy living in a place that shared concierges, housekeepers, celebrity chefs and spas with the most discerning hotel guest? Riyan Itani, head of Savills international development consultancy, put it simply: “The concept of branded residences, from its inception, has been based on the provision of services and facilities that one would typically find in a hotel.”
The synergies between high-end hotel brands and branded residential developments, then, are somewhat obvious. But what value does an automotive brand, or a jewelry brand, or a fashion brand bring to the dining room table?
According to Savills, during the last ten years, the number of branded residences increased by 170 percent, adding more than 52,000 units across 370 projects. In the beginning, branded residences were almost exclusively the domain of luxury hospitality brands, but that is changing. as more and more non-hospitality luxury brands enter the fray. Part of the reason for the shift is that some markets have reached capacity in terms of luxury hospitality branded offerings, while in places more driven by trends, developers are looking for sexy points of product differentiation.
While a few such non-hospitality brands were prescient early on (Palazzo Versace on Australia’s Gold Coast was actually quite revolutionary when it opened in 2000), most of the newer players have come on the scene during the last five years. The Porsche Design Tower opened in Miami in 2017. Aston Martin will add more automotive cachet to the Miami residential scene in 2022, and Bentley will enter the mix there by 2026. Lamborghini is shifting into high gear in Dubai with an immense project (8,000 residential units) to be opened by 2024. Italian car design firm Pininfarina is growing its presence through branded residences in Brazil and Guatemala. High-end consumer goods brands like Baccarat, Roberto Cavalli and Armani are also players, although most of these branded developments are one-offs, mostly located in hot branded residential real estate markets like Dubai and Miami.
The Appeal of Branded Residences For Companies, Developers and the Consumer
There are three stakeholders in every branded residential scheme. There’s the brand, the developer and the consumer. In theory, the branded residences sector offers an opportunity for high-end products to expand their brand profile and diversify their business model, while giving developers a unique selling proposition and providing consumers with bragging rights. For non-hospitality brands to succeed, says Chris Graham, author of The Branded Residence Report, an understanding of local markets and developers, careful buyer targeting and brand alignment are all essential.
Having branded residences allows the Bulgaris, Versaces, Armanis and Baccarats of this word to attach an experience to their products, according to luxury branding expert Piers Schmidt, while at the same time, says Graham, offering a big wowfactor that will result in extensive PR.
“Brands can create a theater of dreams; a temple to the brand at which the consumer can come and worship,” said Schmidt. Theoretically, this can lead to a deeper relationship with the brand’s consumer. But that prospect comes at great risk to these brands, according to Barry Landsberg, a long-time veteran of the branded residence world. “The service culture is inherent in the DNA of hospitality brands. Non-hospitality brands do not bring the advantage, so that to be successful competitors in the high-end residential space, they will need to invest in the hospitality ingredients that have been a mainstay of the industry, or potentially risk tarnishing their brand equity. If they don’t get the service component right, that’s the biggest risk if they don’t deliver.”
For the developer, a non-hospitality luxury brand may offer more flexibility in terms of design and required levels of service. That’s because non-hospitality brand deals may not come laden with extensive royalty fees, license fees and service charges, along with strict requirements to ensure the development meets brand service standards, according to Landsberg. Furthermore, developers are always looking for an edge, and adding a seductive brand label to a building, particularly in saturated, status-savvy markets, can increase the allure and the price of the product. That said, Savills notes that while luxury hospitality brands add an average of a 31 percent price premium to branded residences, non-hospitality luxury brands bring in a price premium average of 25 percent.
So, it appears that some consumers are still willing to pay a premium for their non-hospitality branded residences. But the experts say there are caveats, especially given that there is not an automatic assurance of consistent quality service that is baked into hospitality brands.
For a non-hospitality branded residence to sell, a consumer must really buy into the brand at hand. But is that enough? After all, while there are natural synergies between luxury hotels and luxury real estate, one may wonder what value crystal or car brand brings to a potential homeowner. How do you translate the brand essence of a dress or a piece of jewelry or an automobile into where you live? After all, “new car smell” doesn’t really translate in a home environment. But automotive brands, for example, in trying to bring the brand aesthetic home, are doing everything from adding automotive elevator systems which enables residents to store their vehicles in their very own “sky garage” (a multi-car glass display case situated right next to their living room), to sweetening the purchase of a multi-million dollar condo with a “throw-in” of a car, to adding design elements borrowed from the car itself. There may be more relevant synergies in terms of design with fashion houses, particularly those that have homeware or interior design in their portfolios, but in all cases, the service factor is still an unknown.
What the Future of Non-Hospitality Luxury Residences May Look Like
What kind of competition will these schemes offer vis-a-vis hospitality projects?
For a while, it looked like non-hospitality branded residences were merely the new shiny object. But, according to Landsberg, certain projects have proven that "if a brand has the ability to draw from a dedicated affinity group, if it works with a developer who understands the local market and the branded residence space; and it brings on designers to incorporate elements of product integration," he said, "in other words, there is a managed process through architecture, design and service, it can be a success,especially in places like Miami and Dubai, which are dynamic, design-forward markets, and developers there understand their markets well and are looking for ways to differentiate in those crowded markets."
In fact, the success of the schemes may be more dependent on market than on brand, according to Graham. In his Branded Residence Report, he writes, “The non-hotelier segment is typically more focused in emerging markets than the branded residence sector as a whole. Demand for high-end properties has risen quickly in emerging markets in parallel to wealth creation. The nouveau riche buyer may be more attracted to unique products and these lifestyle orientated brands resonate well amongst brand-friendly and knowledgeable purchasers.” Such buyers, he added, are quite prevalent in places like Dubai, Miami and Brazil, where “bling and design appeals.”
Because of their success in those places, Graham says “the viability question of non-hospitality brands has been put to bed. Look at brands like Versace and Armani, which all decided to license their names and design as a brand extension and way to get additional revenues. They took a leap of faith that the product would extend into residential and people would pay a premium and it came to be. Subsequently, the sector has taken on a life of its own.”
Piers Schmidt, however, is not quite as bullish on the sector. “I am pretty negative about it, given that many schemes have not worked and those that have haven’t grown beyond one or two brand residence properties," he said.
Unlike hotel brands, which seem to be able to plant their flags anywhere, non-hospitality brands will be limited, to those specific markets that may be more prone to be susceptible to the label factor of a brand. In that respect, non-hospitality luxury branded residences may end up being more of a one-off novelty than a replicable international model.