Asian Property Review talks to Chris Graham (Founder and MD of Graham Associates), who is regarded as one of the world’s foremost specialists on branded residences.
Does the shift of consumer preference for more independence through branded serviced apartment spell the beginning of the demise for the pure stand-alone hotel set-up?
There will always be strong demand for stand-alone hotels. Whilst branded residences and serviced apartments certainly add to the range of accommodation choices available to travellers, in reality these still represent a relatively small percentage of the market. In many cases – notably prime urban locations – the lack of availability and the high cost of land are key factors that can inhibit the opportunities to include a branded residential component alongside a hotel. Many travellers seeking greater independence are of course turning to AirBnB – although currently most branded operators do not permit their homeowners to use this platform to rent out their residences, which must instead be put into the operator’s managed rental programme.
Apart from concierge and butler services, celebrity or Michelin chef restaurants, in-house cinemas, branded spas, golf simulator, wine storage, award-winning designers and even starchitects, what other distinctive services or characteristics mark the branded service residence?
There is a long list of facilities and services that developers are incorporating in their branded residences (including those listed above). In addition, there is the convenience of owning a “lock up and go” home, that will be kept secure and professionally maintained – and possibly earn valuable income – when the owner is not in residence.
Above all, rather than simply providing more 5*+ facilities, the focus is more about creating a personal and emotional engagement with customers. Some leading branded residences designers such as Luciano Mazza at HKS and John Hitchcox at YOO talk about creating “modern day communities” of like-minded people – a sort of exclusive residents club. Whilst buyers’ priorities remain consistent in terms of location, design and access to world-class amenities, very much in line with trends in the hospitality sector, it is increasingly more about the intangible ‘added value’ lifestyle benefits associated with a brand. Increasingly, the shift is towards creating an emotional connection with residents through experiences.
What are the most common challenges faced by developers when building a branded residence?
There are innumerable challenges that a developer faces and every project brings its own unique set. I would say generally that securing the best locations and ensuring that branded residences are designed for the local marketplace rank quite high. On this second point, most branded operators have rigid guidelines about FF&E, room sizes and facilities so in some cases these may, for example, require that units will be too large – and therefore expensive – for the local market, when priced on a per sq m basis. Many developers today will appoint an operator once the design concept for the residences is already well developed, so marrying up the design to the brand guidelines in such circumstances can be an issue. Another challenge is financial – notably achieving sufficient off-plan pre-sales, since construction is often only triggered once a specified number of units has been sold.
In terms of the buyers, are they filtered to create an exclusive community of persons of a certain standing, yet free of scandals or drama – for some developments that you are aware of?
When there is a committed buyer with money on the table sitting in front of a sales negotiator, it is very difficult for him or her to find reasons not to make a deal! However, I certainly know of situations where potential buyers have been politely turned away. In upper-upscale developments especially, most developers and their sales teams recognise the importance of maintaining an exclusive residential community and are well aware of the negative sentiment that one ‘less-than-desirable’ resident can attract.
Similarly, I have seen cases where high-end developments use celebrities such as footballers to promote ‘the exclusiveness’ of their offer, yet in reality many HNWIs do not wish to have these types of high profile individuals as their neighbours, so this can in fact sometimes have a negative impact.
How much higher can we raise the bar for luxury or is it a meaningless word now, being overused and made up of standard offerings?
Interbrand’s Rebecca Robins was spot on when she observed that the definition of luxury has become so diluted that it is becoming meaningless. This is particularly true in real estate, as almost every residential development that launches is promoted as “luxury”. Design, technology and innovation all continue to expand the boundaries and opportunities for developers, notably around sustainability and Smart Homes, which are fast becoming standard.
Should branded residences adapt to their local environment by incorporating local elements such as local design and architecture, and materials – without diluting the world class standard of the branded hotel operator?
There is no right or wrong way, as every situation is different. It depends on several things, for example the location, the intended target audience, and the brand. Some brands such as W have a very distinctive design style, which is either suited to a particular location and lifestyle or it isn’t. Generally, architects are pretty sympathetic to the local environment and prefer to use locally-sourced materials. I recently heard about an extreme example in which a developer moved an entire village across to his new resort site for total authenticity.
What are the common challenges faced by luxury hotel brands when dealing with local developers as their partners?
Ensuring that the developer designs and builds the property to satisfy its brand standards, and then subsequently maintaining the property to the highest standards. It is important to remember that a local developer may be seeking an earlier exit from the project than the international brand operator, so the operator needs to ensure that its interests – and those of the residence owners – are adequately protected over the longer term.
“80% of CEOs believe their brand differs from the competition, but only 20% of customers agree with that.” – Ricco de Blank, CEO of SHKP Hotels (owns two Ritz-Carltons, a St. Regis and a W Hotel)
The above seems like a big disconnect in perception. How should the hotel CEOs rethink their brand differentiation?
Yes, this quote neatly emphasises a key point I highlighted in my report. There is such a proliferation of brands competing at various levels of the market and to different audience segments, all trying to differentiate themselves by carving out a unique identity and positioning in the marketplace. Yet reading through many brand positioning statements is pretty confusing, even to industry professionals – and if we cannot understand what a particular hotel brand represents, then how can consumers and potential purchasers be expected to do so? Piers Schmidt at Luxury Branding Consultancy undertook a study on this last year in which he found that a significant proportion of hotel brand slogans actually employ very similar sound bites, which he describes as “buzzword bingo at its best!”
Branded residences that present a clearly defined and offer an attractive lifestyle which genuinely resonate with buying audiences, will succeed to a much greater degree than those that do not stand out for anything distinctive.
This is where good marketing can really make a difference, by effectively packaging, presenting and communicating the offer to differentiate the development, so that it truly stands out from its competitors.
With so many branded residences in the market, do you think it will reach a saturation point where the customer can no longer see the differentiation?
In the Southeast Asian market, notably Thailand and Vietnam, branded residences are now becoming so engrained and prolific in the market that they risk being the norm rather than the exception. Branded residences achieve a generous price premium over comparable non-branded homes because of the exclusivity and kudos that the association with the brand offers to owners; as such, in a market that is becoming ‘saturated’ with high-end branded residences, exclusivity can really only be defined by the desirability of the location and the perceived status of the brand itself.
Any examples where the arrangement between the owner/developer and the brand operator is terminated. Usually, what are the reasons for the termination?
Normally this is caused by a failure by the developer or operator to perform its obligations, a breach of contract, or any risk of causing damage to the brand. For example, if the common areas of the branded residences are not maintained to the required standards, e.g. due to insufficient funding, this usually gives the brand operator the right to terminate the association. Of course, this has significant repercussions for the residents and the value of their properties.
Why is there a worldwide shift from branded resort residences towards branded urban mixed-use developments?
Branded residences had been established in North America for many years before the global industry woke up to the benefits that they offer – not least as developers realised that they could benefit from a substantial price premium and (generally) faster sales absorption rate by partnering with a respected brand. This has been driven largely by increasing demand among HNWI consumers seeking high-end residences with the convenience of hotel services in their own homes, together with the confidence that the association with an established luxury brand delivers. Previously, with the high cost of purchasing prime central urban land combined with strong demand for luxury homes sustaining prices, urban developers did not see the need (along with the added costs) to bring on a brand; however, as markets soften, competition increases and the bar is raised, the branded option presents a very compelling route for more quickly achieving differentiation, status and sales.
GRAHAM: TRENDS IN THE NEXT 10 YEARS
From my research and discussions with eminent market professionals around the globe, I predict the following trends during the next decade:
Continuing expansion in the sector in terms of the number and range (i.e. sectors) of market participants.
Broader quality of branded units for sale (i.e. lower star rated hotel operators).
Less focus on ‘tangible’ elements, more on emotional connections.
Wellbeing and positive ‘healing’ environments will become mainstream.
The emergence of residential lifestyle brands for specific demographic segments (e.g. retirement).
The expansion of branded residences into exciting new destinations across the globe, including South America and Africa.
More branded residences across Europe, both urban and resort.
Premiums being squeezed in developed markets with more competition.
More standalone branded residences, mostly in an urban environment.
Editor’s Note: A free copy of the second edition of Chris Graham’s report “Branded Residences: An Overview” can be downloaded at www.gagms.com