Branded and Luxurious Condominium in Singapore
There are now more than 400 branded residences across the globe. While most are hotel branded, with groups such as Four Seasons, Aman, Ritz-Carlton, Mandarin Oriental, One&Only Resorts, Rosewood and Six Senses among the most active in the segment, others have aligned with luxury brands as diverse as Versace, Porsche and Armani.
What are branded residences?
Branded residences are luxury homes associated to a premium brand that offers prestige and recognition through association, in addition to services it provides to its owners. The key themes that surround a branded residence are the emphasis on design, services, facilities and amenities, and architecture. It was reported that buyers were willing to pay premiums of up to 132 percent in Bangkok and 69 percent in Kuala Lumpur over non-branded dwellings.
Branded Residences vs Hotel Residences
Branded residences are unlike hotel residences. Hotel residences are usually hotel rooms that have been set aside for sale by the developer on a sale-and-lease back agreement. Hotel residence hence, is an investment product and the owner has limited use, for example, four weeks in a year. For the rest of the year, the hotel operator leases out the unit and the income will be shared with the unit owner. A hotel-branded residence, on the other hand, is either a stand-alone residential development that owns the right to be associated with the hotel brand for a period of time, or as part of a mixed-use development which comprises a hotel (the same brand it is associated with), the residence and other uses such as retail mall and/or office tower.
Both hotel-branded residences and hotel residences are managed by the hotel, allowing residents to benefit from the use of hotel services; facilities, amenities and security. Investors are typically attracted by these qualities as well as the prestige and recognition associated with the trusted hotel brand. With the luxury status accorded to a branded residence, it is usually able to fetch a premium above non-branded prime residential developments.
History of Branded Residences
Branded residences first evolved through the partnership of luxury residences with hospitality brands, where the brand name of a hotel is licensed for use on the residence. The hotel operator may also form a more intimate alliance with the developer to provide a full range of services and activities, which are usually available to hotel patrons. In light of new entrants in the market, the meaning behind branded residences has taken on an expanded definition in recent years. By marrying residential real estate with luxury brands, jewelry and automotive brands, new forms of branded residences have evolved.
To build a global picture of branded residences we have looked at some of the industry’s biggest hotel operators including Marriott, Four Seasons, Accor Hotels and many more. Together Marriott, Four Seasons and Accor Hotels represent over half of all hotel branded residences, with Marriot alone accounting for three-quarters of these. The map demonstrates the geographical expanse of the concept with hotel branded residences present in over 180 locations across 64 countries globally.
As the concept originated in North America, it is no surprise that this market is the most developed and has the largest presence, accounting for a third of all schemes. However the Asian market for hotel branded residences has seen strong growth, particularly in Thailand and Indonesia, with Asia now accounting for an estimated 30% of schemes. This trend is set to continue, “Asia is the continent of opportunity; there’s a growing market and rapid urbanization,” says Muriel Muirden, executive vice president at the architectural firm WATG.
At a more localized level, as a single city, Dubai is where there is the highest concentration of branded residences. With operators such as Kerzner International, The Address, The W, Jumeirah and Bvlgari entering the branded residence marketplace, from resort living on the Palm Jumeriah to urban concepts close to Downtown Dubai and the Financial Centre (DFC). According to Piers Schmidr, a luxury brand consultant and commentator at The Luxury Branding,” the explosion of development in Dubai is down to the fact that developers and promoters have a need to differentiate; you can build it taller, make it revolve and shimmer, but when you get inside an apartment, having a brand gives an advantage.”
One region in which the branded concept is still quite small is Europe, accounting for only 7% of branded residences. In Europe there is “less demand for branded things, period,” according to Schmidt. “Developers are less prone to license a brand to move their real estate [in Europe] because they know their asset has appeal,” he adds. However as residential markets become more competitive, Europe may be another area of growth.
The branded concept is a predominantly urban concept, with 62% of hotel branded residences in cities as opposed to beach/resort locations. However, this does vary by region. In North Americas, two-thirds of schemes are in cities, whereas in Asia it is much more balanced, with almost half being in resort locations.
As the market continues to expand, it is expected that developments are likely to concentrate in urban areas. Across the global economy, there is a huge shift towards major urban hubs, for example, Aman, the first resort brand, is now moving towards the urban space. This is driven by the less seasonally affected demand in urban centers.
A Rare Commodity / Future Outlook
Branded residences, until the 1980’s a scare commodity but can now be found in almost every major city and major holiday destination. Having extended its reach, the sector is growing exponentially. The major hotel brands dominate and expand. However, smaller hotel groups are entering the market and, recently, luxury brands outside hospitality have lent their names to new developments. This adds a new dimension to the concept, one with an emphasis on pure association rather than a proven service record.
The sector’s growth has been such that, in some areas, the development type has almost become ubiquitous. They were once “the exception rather than the rule,” says Chris Graham, an expert on branded residences, “but look at Thailand today, where almost 40% of all new developments are now branded.” “Marriott International sees demand for co-located residential product in the luxury and uppermost tiers gaining traction,” says Daniel von Barloewen of Marriott International. “The company expects to expand its branded residential portfolio by more than 70% in the next four years.”
“From a consumer perspective, the power of brand identification is only growing.” Says James-Snelgar, head of business development at YOO. “The world is becoming increasingly design conscious and brand aware. We talk about appealing to ‘a tribe’ of like-minded people, people who want to live and socialize with other people with whom they share things in common,” he says.
As well as reaching into new territories, hotel developers are attempting to expand their customer base. “We are seeing an increasing demand now for a more affordable offer catering for the millennial.” Says Snelgar. Resort developers in particular, says Muirden, “are looking at the behavior of millennial parents and what they want: they really want a good well rounded experience for their kids.”
Increasingly, operators are looking at experiences, rather than just services or facilities, as a way to tempt buyers, “The hospitality industry has gone very much from the tangible to the emotional. It used to be “we can offer more: bigger pool, bigger gym etc. Those features have pretty much become a given. There are only so many gold taps and marble you can put into a residence,” says Graham. Now, “it’s about creating memories and an emotional link: bringing in a celebrity chef or cocktail maker, arrangfing a cycle tour,” he adds. “The focus,” echoes Snelgar, “is now becoming more experience orientated: for example cooking, climbing or diving.”
“As well as diversifying the activities they offer, resorts will need to differentiate themselves: they’ll need to be more eco-focused in design and operation. Branded residences will have to be far more holistic, with beautiful gardens and a wellness focus, as well as being more multi-generational,” says Muriel Muirden of WATG.
With a crowded market providing the impetus to differentiate, developers are also aligning with renowned brands for more and more aspects of any residential projects. The model originated with hotels lending their name to developments. The next stage saw the arrival of designers – such as Philippe Starck, who co-founded YOO. “Following the designers have been the ‘starchitects’: Daniel Libeskind, Frank Gehry, Norman Foster and Cesar Pelli among them. In some cases, as developers strive to raise the bar, you can now end up with two or three brands on a single development. The Armani residences in Miami has Giorgio Armani doing the interiors and Pelli doing the exterior,” says Graham. These brands are being pushed forward as part of a scheme’s identity, rather than just a component part of the physical product.
The growth of the sector will not be without potential pitfalls. There is a danger that in democratizing the concept of branded residences, developers also risk devaluing it. The concept has always been aspirational. Now hotel companies are offering brands at a 4-star level also.
That risk may be unlikely to stall developers, however, with industry commentators saying that it is unlikely that we are going to move to a world where suddenly buyers are no longer concerned with the offerings of branded residences.
The market will undoubtedly get more competitive, and there will be a few developers and brands squeezed out as a result, but that is unlikely to stop them trying to capitalize on a market which still offers substantial benefits. The crucial question, as Graham puts it, is this: ”the bar gets raised every year – more facilities, more experience, more tech: if everyone’s doing that, how are you going to offer something different?”
Types of Branded Residences
- Hotel-led developments with integrated residences
- Luxury resorts with accompany residences used as luxury villa rentals
- Residential developments adjacent to a hotel
- Residential developments with hotel management
- Stand-alone residential developments with hotel or brand tie-in
Benefits of Branded Residences?
- Trust in development quality and delivery
- High quality services as amenities available, such as housekeeping and concierge
- Building maintenance and management that maintains value
- Lock and leave option, with property maintained and serviced in owner’s absence
- Rental pool and investment yield potential to offset maintenance costs
Typical Services Available in Branded Residences
- Use of hotel amenities
- Round-the-clock security built-in
- Elevated status on hotel loyalty schemes
- Full range of concierge services
- Spa and salon services
- In-residence dining and catering
- Personal shopping
- Childcare services
Price Premiums of branded residences
The ultra-luxury condominium market is performing strongly, with the hotel brands attached to projects acting as a guarantee for high levels of service, quality and ongoing management and oversight, which adds a lot of value for buyers.
It is precisely these value-add-ons that contribute to the price premium seen in the market, generally in the region of 30-40% over comparable developments, but which also add to the strong resale values available.
Price premiums are certainly location driven between different global destinations and also within particular locations within cities. In many cases, branded residences do not adhere to localized comparable and in many cases, ‘re-set’ the market.
The majority of branded residences are urban concepts. In North America two-thirds of developments are located in cities, with New York and Miami favored heavily, while in Asia, there is even split between cities and resorts. While already accounting for some 30% of all developments, Asia is an area of real growth opportunity, with an increasing market and a healthy project pipeline.
Does this mean that having a brand results in a price premium?
While a brand association may result in a premium in any region, the additional value varies substantially from one place to another. “Where it’s an entirely new offering, we might be two or three times the price of anything in that market. In other markets there will be a price ceilings,” says Price. “A variety of factors can drive price premiums,” adds von Barloewen. “Marriott International has, for example, Ritz-Carlton-branded residences in Kazakhstan and Bvlgari-branded residences in Dubai that commanded significant premiums for the developer over luxury, residential product in those markets.”
It is important to note that as price premium can be location driven. Indeed, our research shows that there is great variation on price differentiations between different global locations and also different locations within cities.
The data shows that the price differentials can vary from as much as 132% in some cities in Asia, to there being no differential at all.
Erin van Tuil, Partner at Knight Frank notes that “while the branded concept in the Sydney market is still embryonic, all the evidence we have to date from marketing One Barangaroo is that a premium of 25% to 35% ahead of comparable non-branded product is where the market will sit.”
However, assessing a price differential is extremely difficult as there are few cases that control for every factor affecting price. For a true comparison, there would need to be a branded residence in the same location as a comparable non-branded, with the same exterior and interior design.
A deep understanding of micro markets is required in assessing the business case for any branded concept. Put simply, will the market pay a premium and why?