Mandarin Oriental's new project will get around Barcelona laws

The Mandarin Oriental residences in Barcelona are located close to the city’s Mandarin Oriental hotel, which opened in 2009 on Passeig de Gràcia. Photo credit: Mandarin Oriental

When Mandarin Oriental opens its branded residence development in Barcelona, the property will be the group’s first residences-only project in Europe. The company is turning a 20-story office block into 34 residences that they will manage under their own brand.  

The project is a redevelopment of an existing office building owned by KKH Property Investors, a joint venture partnership between KKH Capital Group and Perella Weinberg Real Estate Fund II. It is located close to the city’s Mandarin Oriental hotel, which opened in 2009 on Passeig de Gràcia. The residences are slated to open in 2020.

The property is poised to help the company, and Barcelona's hospitality sector as a whole, get around new regulations. Barcelona recently passed a law to limit the number of guestrooms available in the city and imposed a moratorium on building new hotels to curb tourism as visitors heavily outnumbered residents. At the time, hotel groups and associations issued joint statements accusing the local government of trying to demonize the industry. 

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But there are no such restrictions on the residential market, where a housing shortage—driven by Airbnb, local pressure groups have claimed—has pushed up prices.  

The Value of Branded Residences

According to a report by Graham Associates, while branded residences—more commonly part of a mixed-use project including a hotel—were more commonly found in resort destinations, the focus was currently shifting toward prime urban locations.  

The study quoted research by C9 Hotelworks, which found that the hotel-branded residences market in Southeast Asia, the largest market, had now topped $16 billion and was still growing. Thailand led the way in this market, where branded residences accounted for around one-third of its total projects. 

The report identified a 27-percent increase over the last two years in the number of hotel operators offering branded residences and said that the average price premium on branded residences over comparable non-branded residences was between 20 percent and 30 percent.  

Commenting at the recent Hotel Alternatives Event 2018, hosted in London by Hotel Analyst, Rod Taylor, director of Savills, said that Europe was “on the cusp” of embracing the concept, “in a major way—the Barcelona Mandarin Oriental will be huge—the brand matches the exclusivity and adds to the premium.” 

Chris Graham, managing director, Graham Associates, and the report’s author, drew attention to the growing popularity of branded residences with private investors, commenting: “Two thirds of buyers have switched from lifestyle to investment and ownership. 70 percent to 80 percent of owners are now looking to put their units in the rental market.” 

Tariq Bsharat, strategy & business development director for the UAE's Al Marjan Island, agreed. “It has changed over time, now it is being pushed as an investor scheme and something which investors have to consider," Bsharat said. "Some of the developers are pulling in 50 percent premiums for the residences on luxury brands. This can eliminate debt altogether.” 

While opening in Barcelona’s restricted market is a coup for any brand which can manage it, observers wait to gauge whether branded residences will see a surge in popularity in some of Europe’s more open markets.

Katherine Doggrell is an editor at Hotel Analyst, the U.K.-based news analysis service for hotel investors.