Why Branded Residences are a smart investment in 2023

WHAT IS A BRANDED RESIDENCE?

In essence branded residences are luxury residential properties associated with a Brand.

This «trend» is far from new; it is becoming global, and a natural and wise step forward for the major luxury brand hoteliers towards a clientele that requires elevating to new levels of luxury. Essentially the branded residences provide buyers the opportunity to purchase their own exquisitely designed permanent quarters (sometimes within or adjacent to a hotel, sometimes located in a standalone development) usually within a city’s best postcode.

Luxury branded developments come with intrinsic value built into the proposition; extensive amenities, attentive service, lifestyle benefits and the backing of internationally recognised hospitality brands.

WHAT IS THE BACKGROUND OF BRAND RESIDENCES?

The US have historically been trend setter in the hotel & residences business. Standing tall on New York’s 5th Avenue, the iconic Sherry-Netherland hotel opened its doors at the height of the roaring twenties and was the very first to introduce the concept of branded residences – offering the thriving Manhattan elite their own slice of Belle Époque in the form of glamorous privately-owned apartments overlooking Central Park.

Despite the Sherry-Netherland’s success, it would be another 70 years until the branded residence concept would have its watershed moment with the opening of the Four Seasons in Boston in 1985. Since then, this unique style of luxury living has catapulted in popularity and can be found in 60 countries worldwide. Branded residences today, are even more prestigious and offer a wider variety of attractive amenities and services than in the past.

Properties with upscale hospitality brands attached to them are significant players in the high-end real estate market.

And it’s not just HOTEL BRANDS that have gotten in on the action, with luxury fashion brands like Armani and prestigious car manufacturers like Bentley or Aston Martin all fuelling the trend, which has seen the number of branded residences increase by 170% in the last ten years, according to some sources.

WHAT ARE THE MAIN BENEFITS FOR DEVELOPERS OR DIRECT BUYERS OF HAVING A BRAND RESIDENCE – VALUE PROPOSITION

• Trust and credibility in development delivery and quality • ‘Trophy’ status and stronger resale value

• Higher rental income with professional operator management • Hassle-free ownership

• Typically located in prime locations • Cutting-edge interior design, technology and architecture

• Concierge services • In-residence dining and catering • The full range of concierge services

• Owner benefits, e.g. residents’ discount card, access to the operator’s properties in other locations, services and experiences

• Personal shopping • Childcare services • Pet care • Spa and salon services • Housekeeping

• Use of hotel amenities • Round-the-clock security built-in • Elevated status on hotel loyalty schemes

WHAT THE OPERATORS OFFER TO BUYERS

In some instances brands offer rental management agreements where the branded residence acts mainly as an investment product, with the owner having limited use of 4 to 12 weeks per year.

Owners of branded residences sometimes also gain access to an operators loyalty programme, which delivers further discounts and benefits. Most operators, in an effort to maintain transparency and good relations with owners, will publish monthly or quarterly reports regarding the operation of the residences in terms of revenue income and expenses.

Given most operators report approximately 70% to 90% of owners take up the rental pool option, this approach appears prudent. For those owners who don’t wish to participate in rental operations, this level of openness still provides comfort in regards to the ongoing maintenance of the overall asset.

PRICE PREMIUMS

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-adds 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 residence do not adhere to localised comparable and in many cases ‘re-set’ the market.

RENTAL YIELDS

There may also be greater ease for owners to rent out their apartments in hotel-branded residences given the brand recognition and also the fact that many of them will have their own rental pools or programmes already set up along with an existing pool of potential clients with an affinity for the brand.

Indeed many schemes offer in-built and guaranteed rental yields depending on various factors, including when the property was purchased and how much it is used per year. Target returns typically range from 3-5% net yield (6-9% gross). Some new projects are offering guaranteed yields of up to 5% over 5 years.

LOCATION

Latest data shows that most global branded residences are in city locations, which remains the preferred approach due to higher occupancy and stronger returns. However the scarcity, high costs and challenges of securing prime urban land and buildings has seen resort-located branded residences increase their market share.

Regardless of location, branded real estate will almost certainly be located in prime and super-prime areas, another factor which helps retain value and protect re-sale values.

IS A BRAND RESIDENCE A GOOD INVESTMENT?

It is Indeed, for developers and direct buyers. For developers it pretty much applies the same “safe & sound” features in terms of investment risks. Since their assets are under the wing of major brands and insures Value (of course after paying off between 2 to 5% Brand fee to the luxury Flag).

With the sector now booming, international high-net worth buyers also seek security in buying a branded product in unfamiliar markets. Buyers of branded real estate can expect to pay a premium of around 31% versus non branded developments, but the good news is that data shows that branded residences also appreciate to a larger extent. Indeed looking at Four Seasons properties around the world with a residential component, there are regular transactions suggesting appreciation of 20% to 25%.

The limited supply of branded residences also serves to protect prices. Add to that continued investment from the brand into the scheme and there is long-lasting appeal for buyers.

There may also be greater ease for owners to rent out there apartments in hotel-branded residences given the brand recognition and also the fact that many of them will have their own rental pools or programmes already set up along with an existing pool of potential clients with an affinity for the brand. Indeed many schemes offer in-built and guaranteed rental yields depending on various factors, including when the property was purchased and how much it is used per year.

Considering the in-built value drivers and long term price protection, it would seem branded residences are a safe bet.

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