Hospitality investors are expanding into the living sectors, including branded residences, co-living, and senior living. From an investor’s perspective, what are the advantages of these operating models over traditional hotels?
Compared to full-service hotels, branded residences require fewer employees, the turnover of the occupants/guests is much lower and there is much more flexibility in terms of the amenities provided. These three factors all lead to higher profit margins for branded residences, according to Grant McKenzie, group director of operations, Chris Stewart Group.
He commented: “Hotels are generally quite hard work, especially full service. Whereas, from a longer term, branded residential perspective, your staffing levels are lower, your guest turnover is lower, your amenity package is lower, and your profit margins can be hugely attractive.”
There is an expectation in full-service hotels that guests will enjoy several amenities – F&B, leisure, conference and banqueting – and hotel operators try to excel in all areas but often end up doing just okay, he added. In themselves, branded residences, are simpler operations and more self-contained, he said.
In the co-living space, often described as student accommodation for young professionals, similar advantages apply - lower operating costs, higher overall occupancy and a lower capitalization rate which creates value, typically 50 to 100 basis points below that of a hotel, said Sabine Schaffer, co-founder and CEO Europe, Pro-invest Group.
Pro-invest Group is a real estate investment company covering development, operations and asset management. With its background in hospitality, Schaffer said the group rents out co-living units as hotel rooms during gaps in extended stay occupancy. Typically, a Pro-Invest Group property has 20 percent of units occupied on a short-stay basis and 80 per cent extended stay, which, overall, increases occupancy.
Luxury branded residences
The first luxury branded residences emerged in the 1980s, pioneered by Four Seasons in the US and Aman in Thailand, with Ritz Carlton, Mandarin Oriental and Marriott getting in on the action in the 1990s.
Vedika Jhunjhnuwala, senior consultant, Horwath HTL, said branded residences are now an integral part of net unit growth for Four Seasons, with 75 percent of new projects including a branded residence, either within a hotel development or as a standalone.
Christian Bunte, managing director, Avington Group, outlined the benefits of luxury branded residences for their three stakeholders: the brand, the developer, and the individual owners of the apartments.
He said: “From the brand standpoint, branded residences deliver a significant new revenue stream, but what's really important is they deliver a much higher level of stickiness with the customer. Owners of Four Seasons or Mandarin Oriental residences are much more likely to visit the hotels because they get owner benefits.”
Some owners have bought two or three residences around the world, because they enjoy the sense of belonging to an exclusive group, he added.
The new Mandarin Oriental in Hanover Square, London, has 77 residences and only 50 hotel rooms. For developers, pre-sales provide upfront capital and lower the risks of the investment, said Bunte, noting that all the residences in Hanover Square sold 18 months before the hotel opened. Sales prices are typically 45 to 100 percent higher than a comparable unbranded apartment.
For the owners of the apartments, branded residences can offer regular rental income when they are not present, and a higher resale value.
Although traditionally attached to a hotel, standalone branded residences have increased in number. Avington Group recently advised Wesbild Holdings on the first standalone Ritz Carlton branded residence in Canada.
Avington Group has also acted as financial advisor to Loveday, a provider of luxury dementia and senior care with three residences in central London. Two new Loveday residences are scheduled to open in spring 2025 in Belgravia, London; and Esher, Surrey.
Describing the target market for Loveday care homes, Bunte said: “It meshes the experience that we have in luxury hospitality with senior living and dementia care. We’re finding more affluent younger generations want the same kind of lifestyle and experience for their parents as they grow older.”
The care homes must be in areas with high concentrations of wealth because the costs are equivalent to staying in a Mandarin Oriental suite, he added. Opportunities for new Loveday care homes would be in locations like Switzerland, New York, Madrid, and the countryside surrounding London, which Bunte said is generally under-supplied with luxury products.
All quotes from the panel ‘Serviced living concepts: bridging residential and hospitality’ at the Annual Hospitality Conference 2024 in Manchester.