Article

Branded residences: still enormous potential for properties with strong brands

Branded residences, that is, homes associated with a premium brand, are still mainly concentrated in the US and Asia. But this trend could gain a firmer foothold in Germany.

décembre 12, 2019

Branded residences – i.e. condominiums associated with a well-known brand, usually a hotel – are not an everyday product in the residential property market. Particularly in Germany. Even worldwide, branded properties account for a mere 55,000 or so apartments in around 400 developments. Still an unusual way to live, in other words. And not just in terms of the numbers. Few condominiums embody the concept of comfort as completely as branded residences.

The market is partly – but not exclusively – driven by high-net-worth-individuals (HNWIs). The entry fee to join this distinguished club: over USD 1 million in investible capital. More people meet this standard than might initially be expected. The number of HNWIs doubled worldwide between 2008 and 2017 and rose 70 percent in Germany. HNWIs are often members of a mobile elite that desires to call many cities of the world home. Preferably without having to deal with the hassle of running a household – since most of this work is generally done by an in-house team providing hotel-like services.

“Established hotel brands are perfect partners for branded residences since they are known worldwide for providing excellent service as well as a special, instantly recognizable customer experience,” explains Helen Lindner, JLL Team Leader Residential Development Advisory. “We are seeing demand for residential services growing, which has greatly heightened the appeal of branded residences for anyone who values good design and service.”

Temporary home instead of a hotel

So why not just stay at a hotel? Only few globetrotters truly feel at home in their personal living space at a hotel – most need a place to call their own. Plus, the cost of staying in a reasonable hotel adds up over time, even for well-heeled clientele. An exclusive condominium, in contrast, is an investment, particularly in today’s golden real estate market. Branded residences have the added advantage of a strong brand that guarantees top-flight services and property management. All that adds up to a strong argument for the stability and upside potential of this investment, even after the real estate boom has run its course.

Branded residences command higher market prices

These advantages sound tempting – and not just for buyers, either. “Developers also benefit from the brand’s expertise, reputation and name recognition when selling condominiums individually. A strong brand will command a higher purchase price,” says Thomas Zabel, JLL Head of Residential Development Germany. While standalone condominium prices in Munich currently top out at EUR 18,500 per square meter, branded residences could realistically go for as much as EUR 22,000 per square meter. Other German cities harbour similar potential, including Berlin (EUR 11,640 vs. 9,700), Frankfurt am Main (EUR 14,484 vs. 12,070) or Hamburg (EUR 11,304 vs. 9,420).

Buyers and occupants trust branded properties more than unbranded ones.

Thomas Zabel, Head of Residential Development Germany, JLL

But how exactly do branded residences work? First, a company allows a developer to use its brand. Most of the brands are hotels – no surprise since they are from a similar industry. However, any prestigious firm can license out its brand in this way, especially if it hails from the luxury or premium segment. In that case, though, it faces the challenge of developing appropriate services. Hotel brands, in contrast, already have valuable infrastructure and experience that they can mobilise once the property is completed. The developer then sells the apartments to buyers who pay a fee for the hotel services. The new owners can obviously also (temporarily) rent out the property themselves.

Branded residences can be part of an existing hotel complex, incorporated into a mixed-use neighbourhood or built as a standalone property without an affiliated local hotel. “Branded residences work best at two kinds of locations,” explains Zabel. “First, you have holiday resorts, which is where the idea originated. Second, they are on the rise in large cities. Within Germany, I believe Berlin, Hamburg, Munich and Frankfurt are perfect fits for the branded residence approach.”

Germany is still an underdeveloped market in terms of branded residences. That makes it the exact opposite of the US, which holds roughly one third of the global inventory. Asia has a large branded residence footprint, too, especially in Thailand and Indonesia, not to mention individual locations such as Dubai. In Europe, London has proven to be the Old World’s gateway destination for branded residences. All in all, Germany clearly has plenty of untapped potential in the branded residences market.