How will the pandemic affect the growth of branded residences?

Pre-Covid, the global branded residence sector was expanding rapidly as both developers and hotels aimed to capitalise on the systemic growth of global wealth.

The biggest question therefore will be what impact Covid will have on this growth? Will discretionary spending contract as global wealth is potentially checked? Furthermore, in a potentially recessionary environment, will we see greater focus on running costs? Will higher service charges put schemes at a disadvantage in certain locations especially where units are used only on an occasional basis?

What we are likely to see, as a continuing trend, is purchaser sensitivity to unit prices, especially when comparing relative value across schemes and locations. Too often €/$/£psf is referenced when discussing pricing. Value needs to be considered on relative capital terms, based on utility as well investment potential. In this respect, guaranteed yields via investment pools could prove important for occasional users.

As in the pure residential market, we do expect to see many proposed schemes re-assessed for viability. Branded residence demand is very dependent on location and the value drivers vary hugely. Fundamental to understanding the viability of a branded scheme will be a forensic examination of existing stock, principal wealth flows and the appeal of the branded concept in any specific market.

The other central challenge faced by the sector is the impact of Covid-19 on hotel businesses. Could this undermine the branded concept? Conversely, could branded units increase in proportion to hotel rooms to bolster the hotel industry? In addition, will the best brands be even more valuable as a guarantee of delivery and service? Will we see a flight to quality, especially in less established markets?

Critical to the viability of any scheme will be the relative safe haven status of a scheme’s location compared to where the principal demand is coming from. Where there is an adverse relationship, viability will be challenged. Possibly the biggest opportunity for branded residences presented by the pandemic will be the potential outperformance of rural and coastal locations. The experience of lockdown has placed a greater emphasis on wellbeing and expedited the trend of flexible working.

The tradition of moving the family to the favoured holiday destination for the summer could be extended across the year as high net- worth individuals have discovered that they really can work remotely. The daily commute could well become the weekly commute with some basing their families in traditional holiday locations and commuting in a more mindful way. A more wholesome rural or coastal existence may be embraced by many, naturally benefitting branded resorts.

Since their inception in the roaring 20’s, branded residences have always flourished in boom periods. In this respect, it is hard to ignore the financial damage that the pandemic has wrought and its potential impact on any discretionary spending, both in the branded and unbranded sectors. At the same time, the “lifestyle revolution” that is occurring will bring with it opportunity, especially where relative value, best in class product or safe haven status can be demonstrated.

Find out more in our Global Development Report.