Luxury Hotel-Branded Apartments Entice Buyers

Luxury residences attached to five-star hotels have long been a hit with apartment buyers who wanted a place to live with access to hotel services and amenities.

Now, developers are finding that they can sell units at above-market rates for a luxury hotel branded residence, even if there’s no accompanying hotel.

U.K. developer Finchatton transformed the former British headquarters of the U.S. Navy into the Four Seasons Hotels & Resorts’ first stand-alone private residences, featuring 37 homes with sales prices starting at 17.5 million pounds, approx. $33 million.

The project completed construction in London’s Mayfair neighbourhood in 2019. Despite an interruption in sales caused by the pandemic, “only a handful” of units remain unsold, said a spokeswoman for the selling agent Knight Frank.

Mandarin Oriental is poised to open its first stand-alone branded residences in New York City, Beverly Hills and Barcelona. The U.S. residential units are expected to hit the market in the fall, the company said.

In Utah, the St. Regis Deer Valley, which opened in 2009, has recently added private residences to the resort. Hilton Worldwide Holdings Inc. is working on a number of stand-alone branded residences under its Waldorf Astoria and Conrad brands and plans to announce at least one project within the year, a spokeswoman said.

Overall, the number of hotel-branded residences more than doubled between 2010 and 2020. The sector added 52,000 homes in 370 separate developments, according to real-estate firm Savills PLC.

Originally, these residences offered a convenient way for property developers to fund the building of high-end hotels, which can be costly and challenging to finance through conventional loans. Instead, proceeds from apartment sales help cover the hotel construction costs.

“If I put your brand on it, it will help me sell these residences faster and for a higher price,” said Tim Grisius, Marriott International Inc.’s global mergers and acquisition and real estate officer.

Marriott has built 17 stand-alone luxury residences worldwide, in places like Sunny Isles Beach in South Florida and Bodrum, Turkey, under its Ritz-Carlton brand. It has another 17 projects in the pipeline.

‘If I put your brand on it, it will help me sell these residences faster and for a higher price.’

— Tim Grisius, Marriott International

As these residences grew in popularity, real-estate firms found that the units attracted wealthy buyers even without the full slate of hotel amenities. That’s because buyers of private residences tend to have a strong loyalty to the luxury brand and believe that attention to detail will be high, said Rupert des Forges, head of prime central London developments at Knight Frank.

“They feel that the brand would not put its name to something if they could not provide the right level of service,” he said.

Branded residences usually offer much the same services as a luxury hotel but on a smaller scale, including spa facilities, a bar and restaurant, movie theatre, and private dining rooms. Hotel-trained staff run the property and concierge, promising the same level of service to owners as to hotel guests.

Apartment buyers are often willing to pay a premium for branded residences compared with other luxury buildings, though the level of that premium varies. In London, a city overflowing with prime apartment buildings, Mr. des Forges said the extra cost of buying the property, compared with an equally high-end new apartment, was marginal.

In the Alps, however, five-star brands are increasingly experimenting with residences in ski resorts. Jeremy Rollason, head of real-estate agent Savills’s ski department, said these residences far outdo the resorts’ existing apartment buildings. He estimates that buyers have to pay premiums of between 10% and 20% for these “ultraluxury” homes.

Hotel residences have existed at least since 1927, when New York City’s Sherry-Netherland opened. But it wasn’t until the 1990s that the sector really took off. By last year, branded residences were located in more than 60 countries, according to Knight Frank.

After tapping demand in traditional coastal and city locations, developers are now building these residences in upscale ski resorts in Europe and the U.S.

Hard Rock Café International Inc. opened its first European ski resort and residences in Davos, Switzerland, in 2017, while Ritz-Carlton plans to open in 2026 a resort plus residences in Zermatt, Switzerland.

While the pandemic has slowed most international travel, Marriott’s Mr. Grisius said that demand for residences had actually increased, possibly at the expense of traditional hotels.

“People are not travelling as much,” he said. “Our residences are fuller than they usually are.”

PHOTO: FINCHATTON

Reprinted by permission of The Wall Street Journal, Copyright 2021 Dow Jones & Company. Inc. All Rights Reserved Worldwide. Original date of publication: August 10, 2021

There has been a substantial increase in the number of Australians earning high incomes who are renting their homes instead of owning them, and this may be another element contributing to higher market demand and continually rising rents, according to new research.

The portion of households with an annual income of $140,000 per year (in 2021 dollars), went from 8 percent of the private rental market in 1996 to 24 percent in 2021, according to research by the Australian Housing and Urban Research Institute (AHURI). The AHURI study highlights that longer-term declines in the rate of home ownership in Australia are likely the cause of this trend.

The biggest challenge this creates is the flow-on effect on lower-income households because they may face stronger competition for a limited supply of rental stock, and they also have less capacity to cope with rising rents that look likely to keep going up due to the entrenched undersupply.

The 2024 ANZ CoreLogic Housing Affordability Report notes that weekly rents have been rising strongly since the pandemic and are currently re-accelerating. “Nationally, annual rent growth has lifted from a recent low of 8.1 percent year-on-year in October 2023, to 8.6 percent year-on-year in March 2024,” according to the report. “The re-acceleration was particularly evident in house rents, where annual growth bottomed out at 6.8 percent in the year to September, and rose to 8.4 percent in the year to March 2024.”

Rents are also rising in markets that have experienced recent declines. “In Hobart, rent values saw a downturn of -6 percent between March and October 2023. Since bottoming out in October, rents have now moved 5 percent higher to the end of March, and are just 1 percent off the record highs in March 2023. The Canberra rental market was the only other capital city to see a decline in rents in recent years, where rent values fell -3.8 percent between June 2022 and September 2023. Since then, Canberra rents have risen 3.5 percent, and are 1 percent from the record high.”

The Productivity Commission’s review of the National Housing and Homelessness Agreement points out that high-income earners also have more capacity to relocate to cheaper markets when rents rise, which creates more competition for lower-income households competing for homes in those same areas.

ANZ CoreLogic notes that rents in lower-cost markets have risen the most in recent years, so much so that the portion of earnings that lower-income households have to dedicate to rent has reached a record high 54.3 percent. For middle-income households, it’s 32.2 percent and for high-income households, it’s just 22.9 percent. ‘Housing stress’ has long been defined as requiring more than 30 percent of income to put a roof over your head.

While some high-income households may aspire to own their own homes, rising property values have made that a difficult and long process given the years it takes to save a deposit. ANZ CoreLogic data shows it now takes a median 10.1 years in the capital cities and 9.9 years in regional areas to save a 20 percent deposit to buy a property.

It also takes 48.3 percent of income in the cities and 47.1 percent in the regions to cover mortgage repayments at today’s home loan interest rates, which is far greater than the portion of income required to service rents at a median 30.4 percent in cities and 33.3 percent in the regions.

Luxury Hotel-Branded Apartments Entice Buyers

Overall hotel-branded residences more than doubled between 2010 and 2020.

This may be contributing to continually rising weekly rents