• Marriott moves residential away from luxury

Marriott International said that its branded residential portfolio was expected to grow by more than 70% in four years.

The announcement came as branded residential developments were starting to move away from their luxury-only roots to include the four star and potentially three-star market.

Marriott International said that with nearly 90 branded residential projects already open, it had a pipeline of more than 60 additional signed and approved projects in locations ranging from resort destinations to gateway cities.

“As the number of residential condominium buyers grows globally, Marriott International’s well-known brands are ready to welcome them ‘home’ and deliver a distinct experience,” said Tony Capuano, EVP & global CDO, Marriott International. “We are excited to work with world-class developers to help them deliver highly desirable and successful branded residences to market.

“Residential developers know that we are not just involved with creating a beautiful luxury residential project with a compelling list of amenities and services. We’re also laser focused on creating dynamic communities where people can enjoy a convenient lifestyle and personalise their experiences – just as they do in our hotels, which is why Marriott International expects growth in this segment to continue.”

Branded residences were usually part of larger, mixed-use developments that include a hotel of the same brand. But increasingly, Marriott International was seeing an uptick in signings for residential-only projects that do not involve an adjoining hotel.

Marriott International’s Ritz-Carlton brand continued to be the company’s most popular for branded residences with 35 projects open and 15 in the pipeline. St. Regis was gaining momentum with 12 open and 12 in the pipeline. By 2022, about 70% of the company’s branded residential properties were expected to involve one of Marriott International’s luxury brands.

The company was moving away from luxury, with the remainder of pipeline featuring premium, non-luxury brands such as Marriott Hotels, Sheraton, Westin and Autograph Collection.

Chris Graham, Graham Associates, told us: “Branded residences are likely to go into the lower ratings, be in three or for star and why shouldn’t they? It’s about the lifestyle benefits and the peace of mind, so why not go into the other ratings? You’re going to see other players going into the market, because the benefits are significant for the developer in terms of funding.”

Savills World Research estimated that there were now more than 400 branded residential schemes globally, with a combined stock of approximately 55,000 residential units. Hotel brands were the dominant force and accounted for some 85% of schemes. Marriott International was the largest single player with a market share of 31% among hoteliers by number of schemes. But the largest individual brand by number of schemes is not a hotelier, but Yoo, a brand built on design credentials, with more than 50 branded schemes in operation.

Paul Tostevin, associate director, Savills World Research, said: “New brands will give hoteliers a run for their money. Tech companies, already disrupting the car industry, may be a natural fit. Luxury food and drink brands may be another contender.”

Marc Finney, head of hotels & resorts consulting at Colliers International, told Hotel Analyst: “What people love about branded residences is that it’s hassle-free ownership. If it’s all managed for you, you turn up, enjoy it and then they rent it out for you when you’re not there. It’s a very easy way of owning a second property, although it can be very expensive.

“From a developer point of view if you can engineer it so that you are selling half or third of the rooms in advance, it helps with funding or getting cash back and you can make some profits. It’s proven to be a popular product with the buyers. Some offer a minimum investment return, if you’re someone looking for a holiday home and your savings are currently earning 0.1%, then it’s very attractive.

“There are certain contracts that make it compulsory you rent it back – they don’t want resorts where there’s no-one there. Then there are ones where you have the option and others where you keep in unrented. It’s important to check what you are buying – governments have intervened in resorts where they want ‘hot beds’ rather than ‘cold beds’.

“For the operators it is fees, fees and more fees. They tend to be quite good at collecting them, but for the developers, if they get a premium of 20% then they don’t mind 10% in fees and it does tend to be a 20% to 30% premium for a brand.”

HA Perspective [by Katherine Doggrell]: While the branded residential market is not so colossal that there’s a risk of running out of sheikhs to fuel it, it doesn’t hurt to look at other markets and premium, possibly with a lifestyle element, opens up more affordable options.

The segment plays into the accommodation-as-a-service market, which we here at Hotel Analyst have noticed creeping into the property market, most-notably with the residential developments targeting Millennials, which are one step up from fancy halls of residents and ensure that your adulthood need not be blighted by changing your gas supplier every six months to stay ahead of the game. Hotels have worked out that this is one area where their brands come with an easy-to-prove premium and the other operators are likely to start piling in.

It’s not all fees for the operators, however. With more and more cities likely to follow the lead of Amsterdam and Barcelona and start limiting the number of hotel developments in their city centres, residence-only developments may be a way to keep sticking pins in maps, most-likely without a rental component. With local governments under pressure to push residential development, this is one PR win, even if it might not address the affordability issue terribly convincingly.

Additional comment [by Andrew Sangster]: At Hotel Analyst we are in danger of repeating ourselves with our analysis that the lines between accommodation segments are blurred to the point of non-existence.

The silos of the past are gone. The internet has brought a level of transparency in the consumer offer that puts a corporate four-star beige box alongside a tree house as competing products. (And just to bring that point home, according to Airbnb, tree houses are their most successful products).

At the same time, it is absurd to suggest that treehouses are really a big threat to hoteliers looking to host road warriors. Traditional channels – travel management companies, negotiated corporate rates and so on – are still the biggest source of demand for business hotels and, while in steady decline in most cases, will remain vital for many years.

So, what to make of Marriott’s push into branded residences? The answer is both long and short term. Right now, there are some handy high-margins to be made by sticking Marriott brands on developments.

For the longer term, Marriott is making sure it is covering the gamut of accommodation property. It is already experimenting with homesharing in London in its JV with Hostmaker involving Tribute Homes. The latest move is an extension on this same approach of ensuring it remains relevant.

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