Branded residences heading for phenomenal growth
Hospitality is having its moment according to Rob Sykes of specialist design company and advisor WATG. Sykes said that within the hospitality sector resorts and leisure and leisure travel which is bouncing back after the covid pandemic, along with the so-called “revenge travel” has really continued unabated.
“We’ve seen fantastic operating performance across the resort sectors globally and clearly investors are looking at that and starting to get more and more involved,” Sykes told Real Asset Insight’s Richard Betts.
He added that his firm is increasingly working with private equity funds, sovereign wealth, institutional funds, who are increasingly receptive to exploring opportunities to invest in resort projects and this is accelerating the growth of the sector globally. Sykes added that for many years “wellness” was having its moment.
But he added: “For the last 10 years people have been talking about lifestyle hotels and more recently branded residences is a growing phenomenon. We’ve seen almost a perfect storm of market conditions.”
He pointed specifically to the move to management agreements rather than ownership. “Consumers are becoming more and more convinced that this is an interesting investment model and clearly for developers there’s a very strong economic rationale for exploring branded residential development.”
“The industry is now moving through this evolution where wellness remains incredibly important in terms of more holistic nature-based wellness, all the way through to more clinical, medical wellness.” There is also a trend to lifestyle hotels and branded residences.
Branded residences originated in North America and were very much about owning a trophy asset. The industry has evolved in the last five to 10 years and is seeing a more varied typology. In a resort context the role of rental pools and rental programs is rising in prominence and the concept is becoming more of a hospitality product.
“We need to understand all of the nuances that that brings, whether it’s servicing, operations, how do we manage to give potential residential owners and occupants access to the hotel’s amenities versus building their own standalone facilities. We really need to look at these collocated hotels and branded residences as one picture.”
Operators are understanding the concept better but brands like Four Seasons, Marriott International and Ritz Carlton led the way. Operators have been catching up and hospitality development teams are upskilling which will help a more seamless roll out of branded residential projects in coming years.
The pipeline of projects is about 150% of stock already open globally. “In Europe it’s even more, starting from a low base. We’re looking at more like 325 to 350% pipeline versus existing stock,” Sykes said.
“In the next five years, it’s likely that globally the number of branded residences in the market will double what there is today.”
Developers and operators are putting their momentum behind the model but that would not be sustainable without consumer demand.
“People are willing to pay a premium for this product because of the security in the investment the potential for returns if there’s a rental program, long-term capital appreciation but, ultimately, the security blanket that the brand and the operator gives. You know that when you’re not in residence your property is going to be well maintained and when you do come to use it, it will be an impeccable condition.”
