They offer higher yields and sales premium, lower operating costs, hassle-free management and a quicker sale than regular properties
HISHAM EL ASSAAD
Director of Sales, Select Group
Dubai is expecting over 25 million visitors this year for Expo 2020. We foresee an increase in demand for short-term rentals and serviced residences. This is what makes this asset class a compelling investment proposition.Dubai’s real estate industry is young, dynamic and unafraid to experiment. It is this mix that makes everyday exhilarating. Challenges do exist, however they are inconsequential in comparison to the positives, so you learn to tackle them.
Millennials are driving change in home ownership trends. The demand for short to medium-term accommodation is on the rise. Branded, serviced apartments provide the best of both worlds: the luxury and amenities of a five star hotel in the comfort and privacy of a home.
Research has shown that yields for serviced residences are typically higher than regular residential properties. Serviced apartments target affluent tourists and/or busy business executives who are content to pay more to enjoy added services and convenience.
Dubai has always been renowned for its exceptional hospitality services and its luxury hotels. It’s no surprise then that the emirate’s residential sector would enhance its offering with serviced residences. These units are exceptional investment options for UAE residents as well as global investors looking for a second home or Class A properties to grow their asset portfolio.
So, what does a buyer look for in a branded residence? It’s a more sophisticated offering that elevates their living experience. Such residential properties incorporate not only great design, but also offer the benefits of lifestyle concierge services, tailored packages and other privileges.
The prime location of these properties is another critical factor that guarantees higher occupancy in these branded, serviced residences. Additional factors that make serviced apartments an attractive choice for investors are ease of sale owing to short-term guests as compared to traditionally rented properties that require a year-long notice to the tenant. Excellent maintenance of the property is also guaranteed as the operator is responsible for ensuring that high standards are met in line with most brand guidelines.
They offer higher yields and sales premium, lower operating costs, hassle-free management and a quicker sale than regular properties
GCC demand for Dubai serviced residences
Over the past few years, there has been a popular trend of investing in off-plan residential properties. Every second day, developers are launching residential projects.
With less than a year to go for Expo 2020 Dubai, the high visitor number is expected to fuel demand for serviced residences. These units are an attractive alternative for medium to long-staying guests who require premium hospitality features along with the added comfort of a kitchen, living area and bedroom.
Serviced apartments enjoy healthy demand from business travellers, relocating families and GCC families travelling for leisure. They are an excellent way for newcomers to get settled in Dubai as they are usually fully furnished, offer all amenities and often monthly rent payments that include utility bills and cleaning services.
With the recent shift in focus to expand the UAE’s family leisure attractions, the need for serviced apartments is being felt more than ever. Dubai’s growing number of family-friendly theme parks, outdoor adventures and festivals are attracting more travellers to the region. Typically, larger Arab families prefer the spaciousness of a well-serviced residence to a hotel.
Over the past few years, there has been a popular trend of investing in off-plan residential properties. Every second day, developers are launching residential projects.
According to Data Finder statistics, there were 73 residential projects launched in 2019 and 263 residential developments were handed over. Choices of residential off-plan and ready properties are readily available for investors and end-users while commercial properties are far less in number. Having less opportunities in commercial real estate gives investors a sense of prestige as these units are limited and, therefore, more exclusive in nature.
Prime areas
In 2020, Dubai will see a significant new supply of various types of real estate entering the market across different locations; however, tier one developed communities, such as Downtown Dubai, Dubai Marina and the Palm Jumeirah, will continue to be more popular with investors due to high occupancy from end-users.
Waterfront locations, such as the Dubai Marina, where there is a limitation for new supply of serviced branded residences, is also a compelling investment proposition for those that seek high-end living. For instance, Jumeirah Living Marina Gate offers the Jumeirah Group’s luxury hospitality experience to its residents.
Emerging communities in Dubai are also catching up with the trend of introducing branded residences, with developments such as the Banyan Tree Residences Hillside – Dubai in Jumeirah Lakes Towers, Milano Giovanni in Jumeirah Village Circle and Vivanta by Taj The Residences at Jumeirah Lakes Towers to name a few.
World view
According to data from real estate consultancy Savills, there are around 65,000 branded units in the pipeline from over 430 branded projects around the world. This year alone saw the delivery of 9,000 units from 60 projects across 21 countries. The year 2020 will see 70 developments being delivered, as per Savills’ report.
The new supply is in response to the growing demand for quality branded property from people across the globe who don’t want to compromise on their comfort. Hotel-branded schemes accounted for 86 percent of completed units and 96 percent of the supply pipeline, with leading names like Marriott International and Accor being the market leaders globally.
Investment advantage
The serviced apartment sector has seen a rise in interest from investors who wish to invest in the UAE property sector in a hassle-free structure. Typically, an investor can gain 6.5 percent to 8.5 percent gross yield when they invest in serviced residential units when compared to normal residences.
Besides being superior products in comparison with residential apartments, serviced apartments also benefit from lower operating costs than hotels. The serviced apartment business model is characterised by a lean operating structure, with a limited amount of staff compared to hotels. The lower staff ratio in branded properties also translates into lower operating costs. Serviced apartments also offer guests larger rooms than hotels due to savings in operating costs because of their limited service models.
Moreover, branded residences add the luxury element, giving an added advantage and confidence to wealthy, brand-conscious investors. This demographic looks for brand quality design and services that branded properties generally offer. Reputed names make it attractive, ensuring well-managed services, thus providing higher capital values and leasing and room rates to investors.
According to Savills’ analysis, the average premium for branded residences over non-branded product stands at 35 percent, and can exceed 70 percent in emerging markets.
For the developer and operators, having a branded offering stages their property with greater appeal and value, allowing their product to be more competitive in the marketplace.
Most of these branded residences work on a rental pool agreement. This means the properties are sold to investors with a lease-back option under its rental pool agreement for a fixed duration of time. This model of property investment gives investors attractive returns, along with hassle-free ownership and effortless management.
Draw of a global hub
Dubai’s standing as a global hub for tourism and leisure is further driving the demand for serviced residences. Investors in a rental pool arrangement also get to stay in the property for usually one to two weeks. This means it is an attractive investment option even for overseas investors who can use the property as a holiday home. They get the added benefit of hassle-free and profitable opportunity, with booking, maintenance and housekeeping managed through a rental pool.
Branded residences are also a product for savvy investors who reside in Dubai and want to benefit from high returns. Even end-users gain from this product as it offers ample space of an apartment but with the added advantage of bespoke services like housekeeping and amenities such as a health club. Several branded projects also offer guaranteed returns to investors.
