As part of our series delving into the exciting topic of branded residences, and following on from our analysis of branded resi performance last week, this week we’ll be looking into supply and pipeline of the model which has continued to grow in popularity across the world.
The branded residence sector is experiencing extraordinary growth, driven by both traditional hotel brands and a variety of non-hospitality brands entering the market, with the asset class evolving from a niche product to a mainstream product over the past few decades.
Growing global popularity
Rico Picenoni, head of global residential development consultancy with Savills UK says that in the past year alone, another 240 projects have been added to the global network.
“This takes the current total of completed and pipeline projects to over 1,500,” he notes, with 760 schemes in the pipeline which are expected to be completed by 2030.
According to data from Savills, in the past decade, branded residences have increased by 180 per cent globally, with the Middle East exhibiting the strongest growth amongst all the regions, Picenoni notes.
Maria Ashton, vice president - head of luxury development, Northern Europe at Accor agrees. “Branded residential is almost faster growing than the hotel industry in terms of new projects right now and it’s huge in the Middle East. There is no doubt that it’s booming in Dubai – there’s some sort of project on almost every corner.”
But the rapid expansion is not limited to the top four markets - Dubai, South Florida, New York and London – which remain attractive due to their appeal to high-net-worth individuals - but also in emerging markets which are showing tremendous potential, thanks to a growing affluent population and a push by local authorities to enhance their residential offerings, Picenoni says, highlighting that some of the markets with the highest pipeline growth are Cairo, the Red Sea and Batumi in Georgia.
Key players
And the brands themselves have a role to play in this expansion, with over 200 participants getting in on the action, with Graham Associates’ Brand Compendium noting that 80 per cent of the global market of branded residences are managed by hotel companies.
“The sector has become remarkably brand-diverse – from single site operators to major global hospitality brands, from F&B to fashion and jewellery, automotive to publishing, cartoon characters, musicians - and even a celebrity hairdresser,” says Chris Graham, managing director & founder of Graham Associates, adding that just in the last three weeks another three new brands have been announced.
Picenoni adds that luxury hotel brands account for two-thirds of all hotel branded residences, thereby playing a significant role.
According to Savills’ research, The Ritz-Carlton leads amongst luxury brands - boasting 89 branded residences - with Four Seasons and St. Regis following closely behind. From an operator perspective, Marriott remains the leader with more than 260 projects, 75 per cent more than Accor. And across both hotel and non-hotel brands, luxury, upper-upscale and design brands dominate globally.
Entering new markets
While the global branded residence pipeline is expanding, entering new markets is not without its challenges, with Picenoni noting that determining which brands active in the space can deliver the greatest value requires an intimate understanding of each brand’s value proposition and Ashton highlighting a further challenge around aligning expectations between global luxury brands and local market realities.
“A big challenge faced when entering new geographies is a disconnect between our expectations and those on ground in the local market. For example, we know what a customer of Fairmont, Raffles or Sofitel would expect in unit but we’re finding ourselves having to convince owners that we’re not just trying to attract the local market and there needs to be some level of consistency globally,” she says.
She advises that when entering new markets, it’s important to have an understanding of the project’s partners, their vision and the aligning the vision to the brand.
She adds: “The legal aspect is also important - every time we go into a new country, there are different jurisdictions, and we don't always have all the expertise so we have to really rely on our local partners but also external counsel to help us with that.”
Ashton advises further: “When going into an emerging market, you have to enter with the right brand that’s not too over-programmed. For us, a brand like Sofitel is our best luxury brand to enter into a market because physically, the requirements are less stringent than for example a Fairmont – so Sofitel for us is a brand that adapts really well into emerging markets. It's very well known globally that can help set and establish a luxury market.”
Picenoni adds that compliance with planning authorities, securing permits and navigating jurisdictional formalities may be additional hurdles.
“Compliance with planning authorities is always challenging. Securing permits can be challenging depending on the jurisdiction but so is deciding on a program that works for the market - optimizing a program that will extract the greatest value can be challenging,” he says.
A bright future
Looking to the future, branded residences show no sign of slowing down, with Ashton spotlighting urban centres in Europe as having the most potential.
“Investors are increasingly starting to understand that they have much better returns than traditional hotels, and so I think that they are going to start popping up more in capital cities in Europe.”
She adds: “The next big innovation in luxury hospitality is going to come from the residential space. I think we’ll see a lot more standalone residences in urban areas which are not associated with a hotel. I think that’s the next thing for luxury and we’re already starting to see it come through.”
And in Asia Pacific – where the number of projects exceeds 320 - Savills says that by extrapolating the annual growth exhibited by Asia Pacific and comparing it to the annual growth of North America, the region could rival the veteran North American region within the next 12 years.
Turning to markets with unrealised potential, Picenoni says: “The market that has the most underwhelming level of activity but with significant potential, subjectively speaking, is Australia. There’s definitely opportunity there but it may be that developers do not fully understand the value or the model for branded residences in that market.”
It seems that with more projects continuing to emerge, the branded residence market is poised to continue to grow in significance.