If money talks, investors are saying they aren’t that interested in hotels as much anymore. Can you blame them?
As Dubai cruises past the 800 hotel mark, it seems branded residencesare the next big opportunity for operators in Dubai.
The numbers in the segment are impressive. A Baccarat-branded penthouse in Downtown went for US$55m in April 2023, with the buyer wooed by renders alone. The project is still three years away from completion.
In May, hotel group Jumeirah snatched headlines for the sale of a US$114 penthouse at the upcoming Jumeirah Marsa Al Arab hotel.
Over at the Marriott-operated Bulgari, its residences are so popular, that a second, entirely residental skyscraper is being built next door.
Apartments favoured over hotel rooms
At the more affordable end of the spectrum, Rove Hotels has launched apartments in neighbouring emirate Sharjah.
Ennismore’s mid-market brand Mama Shelter is on the way to Dubai this year, too. Originally planned to have 201 hotel rooms and 80 residences, owners promptly decided to reverse things and make space for 204 residences instead, with the hotel component now significantly smaller and rarely mentioned.
“The intersection of private residences and lifestyle brands is one of our most compelling areas of growth right now – two areas in which Accor leads the global hospitality industry and is continuing to push forward,” said Jeff Tisdall, chief business officer, Accor One Living.
“Around the world, we are seeing strong demand for homes that are anchored by the comforts and promises of a beloved brand experience, providing a sense of belonging and community. This is particularly true for our lifestyle brands, where we see an important and growing segment of residential buyers who are seeking design-led brands, with unique personalities that celebrate modernity, creativity, compelling food and drink, and extraordinary experiences.”
At the start of 2023, Accor launched Accor One Living, its own real estate arm. Through One Living, expert teams in each region will sit with developers, ensuring design, service and Accor-backed benefits are aligned with the needs of specific “targeted homebuyers.”
Following the success of Ennismore’s SLS Dubai hotel, rather than introducing a second hotel, it is launching a residential development under the same brand. The original also has a big residential section of its rooms.
The new-build SLS Residences The Palm Dubai will be perched on Palm Jumeirah’s West Crescent, putting it on the same road as the likes of W Dubai – The Palm, Th8 resort, and Jumeirah Zabeel Saray. The location will also give residents beachfront access.
IHG Hotels & Resorts is doing something similar. One of the its most luxurious properties in the Dubai pipeline, Six Senses on Palm Jumeirah, appears to be focused on selling apartments, rather than filling hotel rooms.
Opening in 2024 it will have just 60 hotel rooms and 162 branded residences. Six Senses Residences The Palm, Dubai includes 121 penthouses, 32 sky villas and nine beachfront villas, all of which come with access to the hotel’s facilities.
Dubai as a branded residences hub
Dubai has the highest concentration of branded residences. The emirate has the most schemes in the pipeline as compared to any market in the EMEA region with a projected growth of over 72 percent until 2030, according to a report by Savills.
Rico Picenoni, director of global residential development at Savills, said: “Our residential development consultancy team tracks the global branded residential space supporting developers and brands alike, and we have found no other market quite like Dubai. The emirate catapulted to the forefront of the branded residential sector in the decade following 2010.
“Over the forecast period, Dubai is expected to demonstrate growth that will make it roughly 30 percent more active than the second most active market globally, South Florida. This global city has demonstrated more than 16 percent compound annual growth over the last 20 years whilst the other, high-profile markets have each demonstrated no more than five percent compound annual growth, which is remarkable.”
Knight Frank weighs in
Knight Frank’s new Destination Dubai report, in partnership with YouGov, surveyed 183 ultra-high-net-worth individuals all over the world, who collectively have a spending power of US$2.5 billion and a net worth of US$3.2 billion.
The findings: Branded residences are where the money is at.
Among the respondents, 52 percent express their likelihood to purchase a branded residential property in Dubai this year. Notably, this figure rises significantly to 69 percent for individuals with a personal wealth exceeding $10 million.
East Asian respondents exhibit an intent to purchase branded residences in Dubai during 2023, with a remarkable 85 percent expressing their desire. This percentage stands 50 points higher than all other regions combined.
Furthermore, the popularity of branded residences is further underscored by the substantial demand from individuals who visit Dubai more than once a year. 87 percent of this group express keen interest in purchasing a branded home in the city this year.
When asked outright why they intend to purchase a branded residential property in Dubai, 45 percent of high net worth individuals responded to say the purchase will be ‘purely for investment/capital gains’. A further 30 percent are keen on making the purchase ‘second home/holiday home’.
“Branded residences are becoming popular in Dubai due to the increase in demand from international clients,” suggested Knight Frank associate partner, head of project sales & marketing Tareq Darwish.
“Another factor is the vast majority of HNW clients are currently purchasing in Dubai to relocate to the city or use the residence as a second home. Meaning, luxury which is associated with high end brands, is high on demand.”
A market boom
According to Savills International Development Consultancy, the branded residential sector globally has grown 150 percent over the past decade, creating more than 100,000 units across 640 projects around the world, with an expectation to exceed 1,100 projects by 2027, nearly doubling the current supply levels.
Concurring with Kinght Frank’s findings, Accor’s Tisdall said the branded residence market is booming thanks to demand from the ultra-rich.
“Global demand for branded residences is being driven by a number of societal and demographic trends,” added Tisdall.
“Growth drivers include a post-pandemic surge in demand for a second or even third home-away-from-home; the desire for seamless, turnkey recreational homes that can be cared for and even rented out while homeowners are away; and generational wealth transfer among high net worth and ultra-high net worth buyers who see real estate as an important element of their wealth management strategies and family legacies.”
Hotel branding still important
In defence of the traditional hotel market, hospitality is still a more appealing investment opportunity than branded residences for HWIs, but only by a narrow margin.
In order of appeal, Knight Frank posted residences top (32 percent) when it comes to first-choice investment; offices (15 percent) and hospitality (15 percent) coming in second and third place, respectively. Meanwhile, branded residences (14 percent) and retail (14 percent) closely follow.
Interestingly, it is the brand identity and prestige of owning these branded residences which make them so hot. 53 percent said prestige was their top reason, 50 percent said brand identity was.
Dubai hospitality future
Without the allure and performance of Dubai’s hotel sector, these branded residences would be far less appealing. And, despite the growth of branded residences, Dubai hotels are still growing, too.
With Dubai set to reach 40 million visitors, what is more likely is any new supply in the market will opt to lean further and further into allocating more space to branded residences.
There are now over 118,000 hotel rooms in Dubai, one of the highest numbers for any major city. There are currently another 27,000 in the pipeline according to STR, indeed one of its highest figures ever, but only just over a quarter of Saudi Arabia’s 100,000.
For Dubai, next will come the branded residences, the branded yachts and even private jets.