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Branded Serviced Apartments and Residences Worldwide - International - June 2010
Introduction
 
This report covers two distinctly different types of lodging products – branded serviced apartments and branded residences. Serviced apartments or ‘aparthotels’ (generally known as extended-stay accommodation in North America) are self-contained living units that typically rent out by the week or month as opposed to one or several nights like standard hotel rooms. Corporate housing, which is an important market in North America, is typically leased out on a monthly basis and competes to some extent with extended-stay hotels.

Meanwhile, branded residences are freehold properties – either apartments, houses or villas – either attached or freestanding. The market for branded residences has shrunk somewhat with the financial crisis and recession, which have both sapped the buying power of the high net worth individual (HNWI) customer base and eliminated much of the liberal financing that was available before the sub-prime crisis hit in the summer of 2007. (It should be noted that various forms of fractional ownership – private residence clubs or destination clubs – are not covered in this report, as they were already the subject of a recent special report, Timeshare and Secondary Residences, March 2009.)

KEY FINDINGS
As this report treats two distinctly different types of lodging products, the key findings have been divided into two sections: branded serviced apartments and branded residences.

Branded serviced apartments
●	The serviced apartment sector includes both extended-stay hotels, which rent out suites by the day, week or month, as well as corporate housing, which is leased typically by the month.
●	About three quarters of the worldwide supply of branded serviced apartments are to be found in the Americas, with the lion’s share located in the US.
●	The client base of the serviced apartment market is essentially business travellers, though this varies by region. In Australasia, the leisure market reaches almost 50% of the total.
●	The US extended-stay market is well-segmented with well-established economy (Accor’s Studio 6, Extended Stay’s Crossland Economy Studios), midscale (Extended Stay of America, (InterContinental Hotel Group’s Candlewood Suites) and upscale (Residence Inn, Staybridge Suites) brands targeting specific segments.
●	A couple of the major upscale US extended-stay brands (Marriott’s Residence Inn & InterContinental Hotel Group’s Staybridge Suites) are in the early stages of expansion outside North America. So far, there has been virtually no expansion of economy or midscale brands outside North America.
●	Pierre & Vacances and Accor are the only major branded serviced apartment operators in Europe.
●	Otherwise, there are significant branded serviced apartment operators based in Singapore (Ascott & Frasers) and in Australia (Mantra & Quest).
●	Ascott, in particular through its Citadines acquisition, and Frasers have expanded into Europe.

Branded residences
●	In most cases, the entire process of developing, constructing, marketing and selling branded residences by major upscale and luxury hotel chains is completely outsourced to third parties, with hotel groups collecting a licensing fee (typically about 3% of gross sales price, according to Philip Bacon of HVS), which is paid out as the units are sold.
●	Pierre & Vacances is an exception to the rule, as they develop their own properties, which are subsequently sold to individual investors.
●	The branded residence market is extremely opaque, with little detailed structured information available on the Internet or even from the chains who license their brands to the developers, or indeed from the developers themselves.
●	The sector was hit hard by the dramatic decline in the wealth and numbers of HNWIs in 2008, when securities markets tanked and real-estate values plunged.
●	Purchaser financing is a sore point. Many of the sources of easy borrowing disappeared with the financial crisis, as small intermediaries went out of business and banks tightened their lending criteria. Also the drying up of the securitisation market has cut off an important source of funds.
●	Several groups such as Starwood, Mandarin Oriental or the (Donald) Trump Organization have substantial inventory of residences in the pipeline, but it is uncertain as to when (or even if) many of these projects will be completed.
●	There has been somewhat of a pull back from the sector. Marriot/Ritz Carlton cancelled all new developments of branded residences in September 2009. However, projects underway will be terminated and the group will continue to manage existing residences. Hilton Worldwide, for instance, has had a low level of involvement with the sector and currently has only three properties where whole-ownership branded residences (as opposed to fractional interests) are being sold.

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