Explained: Branded Residences
Branded residences real estate has seen exponential growth, becoming the fastest-growing sector in the luxury real estate market. Here is a breakdown of this booming industry, based on insights from industry specialist Chris Graham, given during the presentation of Azurean Marbella – Branded Private Residences by Destination by Hyatt, organised by Engel & Völkers Marbella.
What are Branded Residences?
Branded residences is a concept that started 100 years ago in New York. The original idea began when the Sherry Netherlands hotel on Fifth Avenue built apartments next door to its hotel and sold them. This provided wealthy families with the benefit of “hotel living” at home.
The success of the market is built on the delivery of proven hospitality and services by management companies, typically hotels. This provides the convenience of ordering services like taxis, delivered food, or house cleaning, but for an owner’s home. COVID was a major driver for this concept, as people appreciated having access to amenities like gyms, pools, and spas while staying in their homes.
How much has the Branded Residences Market Grown?
The market has grown significantly in recent years. Between 2002 and 2012, the number of hotel operators in the market increased tenfold. Over the last ten years, the market has seen 195% growth and is expected to continue expanding. Projections forecast an 82% growth in the next five years.
As of the most recent quarter, there are over 230 different brands involved in branded residences. There are 779 completed projects with a pipeline of 967 expected to be delivered by 2031.
What are the Key Players in the Market?
The market consists of major hotel groups and non-hospitality brands.
Major Hotel Groups: Marriott is the market leader with several hundred projects. Accor, a fast-growing French brand, has 26 brands in the residential space. Four Seasons is notable because it achieves a strong third-place position with just one brand, demonstrating its brand power and selective strategy. Hyatt is an emerging player, redefining its strategy to do more in this space.
Non-Hospitality Brands: Non-hospitality brands represent just over one-fifth of the market. These brands often started with design, recognizing the easy transition into interior design.
Fashion brands like Armani, Fendi, Versace, and Missoni entered the market around 2010.
YOO, started by John Hitchcock and designer Philippe Starck, is the leading non-hospitality brand.
Pininfarina, known for designing Ferraris and Lamborghinis, has a large pipeline after moving into design.
The non-hospitality category is a mixed group, including food and beverage (F&B) brands like Nobu, and entities covering sectors like sports (Chelsea Football Club), watch companies (Franck Muller), and jewelry (Jacob & Company).
What are the Benefits for the Parties Involved?
The branded residences model works because the three main parties involved usually benefit.
Brands and Operators: It offers a new revenue stream, allowing seamless brand extension into real estate. For non-hospitality brands, it extends their market and engages with clients. The fees charged by brands are often high.
Developers and Investors: Selling real estate off-plan allows developers to receive revenues up to three years or longer in advance, which helps monetise the project. Branded developments sell faster and at a higher price premium than unbranded properties in the same area. Branding also gives the developer access to the brand’s loyal followers and global network.
Buyers and Owners: Buyers are attracted to the peace of mind that comes from buying from a major international brand that will manage and maintain the home. The primary motivators for buyers are convenience and confidence.
Convenience: Owners get access to services, amenities (gyms, pools, spas), and experiences, often with privileged or discounted access. The property is managed and maintained, offering stress-free ownership and “lock up and leave” capability.
Confidence: Branded properties generally hold their value very well, reducing investment risk. They often achieve higher rental terms and fewer rental vacancy periods because of the brand’s global following and marketing network.
How does Branding Affect Pricing?
Branded residences typically command a price premium over unbranded properties.
The average global uplift in pricing is 37%.
Other analysis shows the premium is around 33%.
Even as the market expanded, the premium has consistently remained around 30%.
However, the premium is highly variable. In crowded urban markets like London and New York, the premium is generally lower due to competition. In new or emerging markets like Kazakhstan or some Caribbean Islands, introducing a five-star branded resort can elevate the market and lead to substantially higher premiums, sometimes reaching 80% or even 250% over unbranded stock.
What are Future Trends in Branded Residences?
Future growth is expected to focus on expansion beyond the luxury market and increased emphasis on wellness.
Expansion to Up-Midscale: The growth area is moving beyond the luxury pinnacle of the market to mid-scale branded residences developments. Four-star and three-star hotel brands are expected to enter the market. By moving to secondary or tertiary locations, developers can secure cheaper land and lower construction costs. This makes the lifestyle benefits of branded living accessible to a much larger purchasing audience.
Wellness and Senior Living: Wellness is a major growth area and a focus for the luxury travel industry. Wellness real estate is the fastest-growing segment of the wellness industry and is predicted to exceed $1 trillion by 2030. Adding a good wellness component to real estate can increase the value by an estimated 10% to 25%. This trend is linked to an ageing, wealthy, and active population. Senior living branded destinations represent a significant, emerging opportunity in the market.
