Branded residences have become one of the most sought-after segments in the global hospitality and real estate markets, and the sector continues to expand at a rapid pace. Growth in the segment has been impressive, with the number of units increasing by 180 per cent over the past decade alone, according to Savills.
Globally, the branded residence sector is dominated by luxury properties, with approximately two-thirds of developments falling into this category. This trend is particularly evident in Europe.
“In Europe, over half of hotel branded residences are luxury at 55 per cent. In Asia, luxury counts for over half of the projects. In the UK, the figure climbs to over 80 per cent,” Rico Picenoni, head of Savill’s global residential development at Savills notes, particularly in London where high costs necessitate the development of luxury products.
However, it's not just luxury that is experiencing growth. The upper upscale and midscale segments are gaining traction, especially in emerging markets where branded residences are becoming increasingly attractive as an investment class. In fact, according to Savills, upper-upscale and upscale brands are poised to increase their market share by between 50 and 70 per cent by 2030.
Ones to watch
And while branded residences in Dubai and certain markets in North America seem to hog the limelight in terms of sheer numbers alone, there’s a good growth story around Asia Pacific. The region is currently leading the way in branded residence growth, outpacing the wider Americas region by 20 to 40 percentage points, with the most active markets in Asia being Thailand and Vietnam and activity also evident in China, Indonesia and Japan.
However, Picenoni points out that this growth is coming from a relatively low base.
“These are countries where branded residences have been developed to a lesser extent such as Australia, South Korea and Japan and are not very established and so it doesn’t take too much to exhibit high percentage growth,” he says.
But though they remain largely untapped, Picenoni is convinced there’s potential in some of these markets. For the wider Asia Pacific region, the number of branded residences is expected to increase by 180 per cent over the forecast period until 2031.
“Australia is a great example of a country that has been under-explored. We’re convinced there’s a lot of opportunity there but we just haven’t seen developers actively pursue this asset class yet.
He adds: “There’s a lot of opportunity for branded residences in these markets. Once developers understand the model and see consistent proof of concept, the sector will pick up,” explains Picenoni.
Why?
The key drivers behind the expected exponential growth in branded residences not just in Asia but globally, are wealth creation and the demand for exclusivity. Particularly in rapidly developing economies, wealth growth is driving the desire for luxury lifestyles.
“There’s a lot of wealth growth in Asia. And branded residences offer exclusivity, trophy status, security, privacy and a certain brand affinity. And so where you have wealth growth, then you also have people that have the money to spend on a certain branded lifestyle,” Picenoni explains.
Turkey is a great example. According to a report by CNBC, wealth in Turkey grew the most in the world at 157 per cent, and the country boasts the largest pipeline of future branded resi projects - with the market projected to grow 10 per cent annually through 2030 - with Portugal, Greece, and Spain following closely behind. The country accounts for over 20 per cent of Europe’s stock, followed by the United Kingdom and Spain.
Looking forward, it seems what will distinguish the top-performing branded residences is their ability to deliver on certain promises.
“What buyers want hasn’t changed much in the last 40 years. They want cutting-edge design, privacy, security, exclusivity, and on-demand services. Looking at what will define the next generation, it’s still very much about service, product differentiation and experiences - so differentiating your product, differentiating your service and offering lifestyle experiences,” he adds.
Developer interest
Interestingly, the development of branded residences in Asia Pacific is largely being driven by regional developers, rather than international players, Picenoni notes.
Looking at other emerging markets for branded residences, Picenoni notes a growing interest from developers in countries such as Brazil, Argentina, Panama and Costa Rica, with Brazil being the most active.
“These markets aren’t hotspots as this asset class is very much in its infancy but there’s interest from developers. This year, we’ve seen more interest in central and South America.”
São Paulo, Cairo, Bangkok, Da Nang and Riviera Maya Mexico are amongst others spotlighted by BRESI to be ahead of the curve and enjoy continued growth moving forward. Batumi, Georgia is also noted to have potential to become an up and coming branded residences hotspot, especially in the mid-scale price point.
The financing of branded residence developments in these emerging markets, however, remains a challenge. According to Picenoni, securing financing for such high-end projects is often the biggest hurdle developers face. Economic conditions, geopolitical instability, and access to capital can all constrain growth.
However, developers who can seamlessly integrate advanced technology, world-class service, and a unique lifestyle experience will set themselves apart in an increasingly competitive market.