The Rise of Branded Residences Globally

The branded residences sector is seeing a period of unprecedented growth globally.

Since 2014, the sector has grown by 176% with 687 projects open and operating globally today. Perhaps even more astonishingly, that number is set to almost double in just the next seven years with a further 617 projects having been signed and announced to be delivered around the world.

So, what are the fundamentals of hotel branded residences and what has been driving the segment’s growth?

In basic terms, branded residences are created through a contractual relationship between a hotel operator or non-hotel brand and residential developer. The brand/operator licenses their name to be associated to the development for the benefit of sales and marketing. Interior design and technical services are also provided by the brand as well as the management of lifestyle-oriented services and amenities such as concierge, valet parking, pools, gyms and other wellness facilities to name just a few.

The residential units are sold to private individuals on a unit-by-unit basis and that contractual relationship is passed on to the Home Owners Association (HOA). In the case of hotel brands, the operator will also often manage the residential real estate and, in some cases, manage a rental program on behalf of the individual unit owners.

The types of branded residences projects also vary considerably. “Integrated” projects have the residences located within the same building as the hotel. “Co-located” projects see the residences on the same site or directly adjacent to a hotel element. “Stand-alone” projects, which are rising in popularity, see the residences on a totally separate site to the hotel — with a hotel of the brand usually present elsewhere in the city/destination — or no hotel component at all.

Finally, “non-hotelier” branded residences projects are ones that carry a non-hotel brand such as fashion, interior design, automotive and other luxury goods brands.

Why has this development model become so popular? The tangible benefits are threefold: for the developer, the brand and the end buyer.

For the developer, the most impactful benefits are increased residential sales values — 30% more than non-branded — and accelerated sales velocities, driven by buyer confidence that is instilled by the association of the brand and the assurance of an exceptional level of service, amenities and management that comes with the brand’s involvement. Other developer benefits include improved marketing power, increased access to a diverse consumer base and differentiation from the competition. These benefits have driven a huge adoption of the model from the development community across the world.

For the brands and hotel operators, the branded residences model generates significant income from licensing fees and management fees. For hotel brands running a rental program, the residences offer an additional and differentiated rental product to supplement the hotels room inventory. At a more fundamental level, branded residences offer these brands a deeper customer relationship and brand outreach that further enhances their most valuable asset: their brand.

Finally, for the end-buyer the benefits can range depending on their motivation for purchase. For lifestyle buyers, the residences represent a prestige, trophy property benefiting from brand association. For investment-driven purchasers, the residences provide a professionally managed product that is suitable to lock up and leave. The rental income potential is also higher compared to non-branded products, with the added benefit of hotel service and management bolstering rental rates. Whether for lifestyle or investment, the proposition of branded residences gives a greater assurance to the buyer of the likelihood to deliver as well as the quality of finishes, services and amenities.

Branded residences have grown to be a truly global phenomenon. Despite them originating in North America in New York in 1927, the concept has now spread across all geographies.

In terms of the distribution of projects, according to research by Global Branded Residences, North America current leads the way representing 35% of all branded residential projects. This is followed by Asia-Pacific at 23%, Europe at 16%, the Caribbean and Latin America at 13%, and Middle East and North Africa at 12%, with Africa only representing 1% of the global share of projects.

The pipeline of projects, however, shows a shift-change in these rankings. Middle East and North Africa and the Caribbean and Latin America will see the largest proportion of new projects at 24% and 21% of the pipeline, respectively. This is led by Dubai and Saudi Arabia in the Middle East and North Africa region and Mexico in the Caribbean and Latin America region. Asia-Pacific will see 20% of the pipeline being developed, particularly in hot spots such as Thailand and Vietnam. North America currently stands at only 18% of the development pipeline and Europe stays at 16%.

This shift should level the playing field with the main regions, excluding Africa, representing between 16% (Europe) and 27% (North America) of the total market of open and pipeline developments globally.

The major hotel companies in this sector — which account for 80% of the market — include Marriott International, Accor, Four Seasons and Rosewood, as well as Hyatt Hotels Corp., Hilton, IHG Hotels & Resorts and many others. From the non-hotelier world, brands such as Armani, YOO inspired by Philippe Starck, Versace, Fendi, Aston Martin, Mercedes, Nobu and Cipriani have been branding and interior designing projects around the world, with great success.

With the sector due to almost double in size over the forecast period, new and exciting brands entering the market and projects being delivered in new territories, the future of the sector is extremely promising. It will be typified by geographical expansion, consolidation of the model in the development community and innovation in brands, as well as the services and amenities that are being provided.

Riyan Itani is director and founder of Global Branded Residences, a development consultancy firm that provides market and data-driven advisory services for branded residential developments around the world.