According to data from Savills, there are currently 740 completed developments, with another 790 expected to be delivered by 2031 and the number of branded residences schemes is set to grow by around 100 per cent over the next seven years. And while branded residences in the luxury segment make up two-thirds of projects, that market share is set to dwindle as midscale and upscale branded residences gain traction, opening the concept up to a much larger audience.

The power of the masses

Unlike their luxury and ultra-luxury counterparts, midscale branded residences do not rely on exclusivity and an eye-watering price tag. Instead, they tap into the power of volume.

“If you think about the global audience in terms of a pyramid, the super-wealthy occupy the narrow top, while the broader base represents a much larger market,” explains Chris Graham, managing director of Graham Associates

“Coming down the pyramid, the prices drop, which means that the market gets much bigger and therefore the buyer pool expands significantly.”

According to Dimitris Manikis, president EMEA at Wyndham Hotels & Resorts, this shift was inevitable as developers began recognizing the sheer scale of opportunity within the middle-class market.

“While the returns on an individual midscale residence may be lower than luxury counterparts, the difference lies in volume. The cost structures, sales velocity and target audience differ, creating a significant opportunity for brands that can scale efficiently. We see this as enormous opportunity for Wyndham,” Manikis says.

His comments come as Wyndham continues to push on in its expansion of its midscale branded residence offering. Around five years ago, it began building out its midscale and upscale branded residence pipeline, focusing on familiar brands like Ramada.

“We are now signing more midscale branded residence deals than ever before and have strong pipeline,” Manikis says.

Experts notes it’s about creating an accessible lifestyle opportunity and offering a product that doesn’t need all the amenities, fixtures and fittings expected in a five-star experience but offers strong functionality and good design.

Emerging markets

In emerging markets where there’s a growing middle-class - and therefore a captive audience for this type of product - branded residences provide an alternative to their non-branded counterparts, with the affiliation with an internationally well-known brand and name recognition enhancing confidence in resale value, operational standards and income potential. Wyndham recognises this.

“We now have more branded residences than anywhere else in the CIS region, Georgia and Pakistan. In India, an estimated 150 million people are expected to enter the middle class in the next two to three years, presenting a massive opportunity for midscale branded residences. The opportunity in Georgia is huge – the growth and awareness of branded residences and condo hotel concepts is amazing,” Manikis says.

An important point to note however is that those who’ll be able to do midscale branded residences properly in these markets and gain a huge advantage in the space are those who have name recognition and can scale.

However, experts warn just slapping a brand on the wall doesn’t equal success. With more and more brands vying to get a piece of the pie, differentiation is critical.

“It's about making clear what the difference is between the brands, what you’re offering and what unique benefits people derive. It has to be the right brand to appeal to the right audience in the right location, and that need to be backed by proper research, due diligence and planning,” Graham advises.

Natural progression for North America and APAC

Other markets set to see a surge in branded residences, Graham notes are North America and Asia Pacific, markets which are already advanced in the space. North America - with its mature market - is a natural progression point for midscale branded residences.

In North America, Accor has brands like Novotel Living and Adagio, and Marriott has signalled interest through Sheraton Residences and Element by Westin in North America.

In Asia-Pacific, which also has a fast-growing pipeline of projects, Vietnam, Thailand and Indonesia are spotlighted, with the Philippines to follow in time.

This is as research from Savills predicts an increase in the number of branded residential developments in Asia Pacific and foresees that the region will rival North America within the next 12 years.

“Vietnam, Thailand, India and China rank among the top ten countries globally for branded residential activity with compound annual growth forecast more than 2pp higher in Asia Pacific than in North America,” Rico Picenoni, head of global residential development consultancy at Savills.

“With highly active markets, such as Vietnam and Thailand exhibiting 10 per cent annual growth, combined, and burgeoning markets such as Japan and South Korea exhibiting more than 50 per cent annual growth, combined, it is not unrealistic that Asia will surpass North America,” he adds.

“The most advanced markets will see the strongest growth in non-luxury segments,” Graham surmises.

Location, location, location

The business case for midscale branded residences lies in its different cost and revenue profile. Luxury developments typically require significant capital outlay – from prime land acquisition to premium fixtures, design, and five-star amenities – meaning a high break-even point and narrower buyer pool.

In contrast, midscale developments are often located in secondary or tertiary markets where land and build costs are lower, allowing for competitive pricing and faster sell-through. And Graham advises that midscale branded residences would work best in secondary and tertiary locations than in primary locations because fundamentally, affordability will be driven by location - land costs and location drive pricing.

“In order to be able to offer something in the lower price bracket, you’ll need to go to a secondary or even tertiary location. Location is a major factor because the cost of the land is going to be a significant factor on the ultimate pricing.”

This is as in the US, midscale branded residences continue to gain traction in tier-two and tier-three cities - while luxury is king in markets like Miami, other cities such as Charlotte and Charleston are gradually embracing midscale offerings.

While he doesn’t rule out capital cities for midscale products, those may take time to gain momentum and slide down in a significant way to markets like London and New York.

Getting it right

But while the opportunity is massive, both Manikis and Graham stress the importance of finding the right professionals, developers, operators as well as having a transparent sales process.

“Get professional help throughout - people who specialise in it across branding, marketing, feasibility studies, operations,” Graham advises.

“When speaking to the heads of hospitality brands, their top tips for developers is always to get professional advice, specifically with marketing and lawyers. Those are the two things that came out strong, head and shoulders above as a recommendation - the complexity of branded residence agreements means that relying on local legal counsel unfamiliar with international markets can lead to costly mistakes.”

As major brands such as Wyndham, Accor and Marriott explore how to evolve their non-luxury brands to cater to this segment, it’s clear that there’s a definite shift into midscale. As midscale branded residences continue to evolve, the brands that can scale efficiently will lead the market. However, strategy is also crucial.

While luxury will always offer strong returns, midscale presents an equally compelling opportunity through volume and accessibility. And as global awareness of branded residences grows, so will demand, particularly in the midscale segment.

By Ifeoluwa Taiwo