Branded Residences: Dubai's Fast Growing Asset Class
Branded residences are no stranger to the UAE market, with launches of celebrity and brand-themed properties commonplace in Dubai, particularly during the boom years. These properties aim to emulate a celebrity or brand's standards, style and personality. Movie stars, sports people as well as fashion designers like Armani and Versace and businessmen such as Donald Trump have lent their brands to various projects in Dubai. But in the wake of the downturn, what are the prospects of such projects?
Hotel branded residences are typically managed by well-known hospitality brands and often sold through fractional ownership or full ownership schemes, with an option to lease back to the hotel. In certain cases, developers retain the units and offer these for lease on a long- or short-term basis.
Buyers are attracted to the associated brand promise and the notion that the product and service levels will be comparable to the particular hotel brand. Owners can enjoy the security, services and facilities associated with hotels, which would be cost prohibitive to deliver in a regular residential environment. Hotel branded residences offer a sense of reliability — especially for investors and end-users purchasing homes in foreign countries, since they can be assured the property will be taken care of, whether it's rented out or left vacant for occasional use.
Branded residences also make sense for developers. Freestanding hotels are expensive to build, with no inflow of cash until operations start, followed by a minimum of three years to reach a stable income. In the current climate, finance for these projects is hard to come by. Branded residences make new projects more economic, since the proceeds from the sales of the residential component reduce the financing requirements on the development. Also, the premium from being associated with branded residences may offset other parts of the project and help lift its perceived quality.
Worldwide, hotel branded residences are typically located in popular tourist locations or cities with a multicultural population, but are not suited to all locations. The market is mature in the US and Europe, while the sector has evolved in South East Asia over the last decade and is now entering the Middle East.
The Scene In Dubai
Dubai is an established tourist destination; besides Egypt, it attracts the largest number of visitors of any Arab destination. Its room rates are among the highest in the world and more than 135 airlines operate through the Dubai International Airport.
Given this background, Dubai seemed a solid option for branded residences. Business travellers, consultants on short-term contracts, newly arrived expat families and the elite looking for year-round refined living — these were all targets. As such, hotels started introducing branded residences into their conventional developments, with many offered for sale to individual and institutional investors looking for annuity income, as well as to second home and holiday home buyers.
Jesse Downs, director of research and advisory services at Landmark Advisory, says Dubai has a market for branded residences, as the emirate attracts high net-worth individuals looking to establish a primary or secondary residence. "Demand for branded units comes from within the UAE, the region and beyond."
While most of these projects are still under construction, a few such as the Dusit Residence Dubai Marina, Jumeirah Living World Trade Centre Residences and the Armani Burj Khalifa Residences have proved popular despite the downturn. The next couple of years will see more branded residences being delivered, with preliminary estimates predicting that more than 4,000 units will be delivered in 2010 and 2011.
The Jumeirah Living Residences feature duplex apartments, designer B&B Italia furniture, a fully-equipped kitchen, a washer and dryer, a Jacuzzi bath and an iPod docking station. Both the Dusit and the Jumeirah Living properties have not been offered for sale and operate more as hotels, with apartment rents currently ranging from Dh1,000 to Dh1,200 per night for a two-bedroom apartment and from Dh1,300 to Dh1,600 per night for a three-bedroom apartment.
The 144 Armani Residences in Burj Khalifa which were completely sold out in 2007, with prices reportedly reaching a whopping Dh14,000 per square foot, are the newest entrants in the branded residences space, having been delivered in April 2010. While the hotel occupies floors concourse to level 8 and levels 38 and 39 of Burj Khalifa, the residences are located between levels 9 to 16.
Under Construction Properties
While most branded residences under construction such as Royal Amwaj, Ritz Carlton, Rosewood and Palazzo Versace are likely to operate as long-stay hotel apartments, others such as The Fairmont Palm Residences, Movenpick Laguna Tower, Grandeur Residences and Jumeirah Al Fattan have been sold outright.
The Fairmont Palm Residence are currently being handed over. Units are currently available in the secondary market at prices ranging from Dh1,700 to Dh2,200 per square foot. The Grandeur Residences, due in the first quarter of 2011, are located on the crescent of the Palm Jumeirah, with residents having access to the services and facilities of the neighbouring Taj Exotica. The project comprises one-, two- and three-bedroom units and beachfront signature villas with prices ranging from Dh1,400 to Dh2,200 per square foot.
The Jumeirah Al Fattan Residences, priced from Dh1,800 to Dh2,200 per square foot, consist of townhouses, penthouses, two- and three-bedroom apartments and will be managed by the Jumeirah Group.
Abu Dhabi Joins The Bandwagon
The UAE capital is venturing into the sector too. "Given the concentration of wealth in Abu Dhabi and potential for regional demand, there is a compelling argument for the extension of this trend into the capital," says Downs.
The Rosewood Abu Dhabi on Sowwah Island will have about 140 branded residences. The Mandarin Oriental Hotel on Saadiyat Island, due to be opened in 2013, will also include 180 branded residences. Aldar's Gurm Resort (72 rooms), Four Seasons Saadiyat (125 rooms), MGM Hotel Residences (500 rooms) and St Regis Saadiyat (280 rooms) are other projects which will include hotel branded residences.
Worldwide, branded residential developments typically command a premium due to their high quality designs and finishes and lavish services and amenities. This premium is estimated to range between 20 and 40 percent compared to similar unbranded residential developments and in exceptional cases as much as 50 to 100 per cent.
Downs says, "Premier hotel branded units typically rent for 30 to 40 per cent premium over similar non-branded units. Since the units are furnished and serviced, the premium is derived from the brand and facilities available as well as the furnishing and additional services provided".
In Dubai, most hotel branded residences are under construction with very few actual sales transactions taking place. As such, it's difficult to determine whether they command a premium over non-branded properties.
The Armani Residences is probably the only project that can provide some form of comparison. Currently, listed prices for non-branded properties in the Burj Khalifa range from Dh2,800 to Dh3,500 per square foot while the listed prices for the Armani Residences range from Dh6,000 and Dh7,000 per square foot. The prices indicate that the Armani Residences command a substantial premium over the non-branded units.
It remains to be seen if rents from branded residences will also enjoy the additional premium, with investors having to shell out high service, maintenance and master community charges, reducing rental yields to about 5 to 6 per cent. As such, confidence in these residences is low, with buyers focusing on niche
In the pipeline
• Fairmont Palm Residences, tentative completion 2010, 558 units
• Ritz Carlton DIFC, 2010, 121 units
• Rixos Ottoman Palace, 2010, 38 units
• Movenpick Royal Amwaj Palm Jumeirah, 2010, 521 units
• Kempinski Palm Jumeirah Residences, 2010, 325 units
• Palazzo Versace Dubai, 2010, 169 units
• Movenpick Laguna Tower JLT, 2011, 296 units
• Grandeur Residences at the Palm, 2011, 222 units
• Jumeirah Al Fattan Palm Resort, 2011, 106 units
• Rosewood Dubai, 2011, 55 units
• Fairmont Kingdom of Sheba, 2011, 875