Home Away From Home
Vacation ownership evolves as options expand, offerings go more upscale.
By Karyn Strauss, Senior Editor -- Hotels, 3/1/2007
For consumers looking to buy vacation ownership, the number of residence options is as diverse as ever. And from shared-ownership models like traditional timeshare and fractionals to wholly owned condo hotels with voluntary rental programs, the choices are becoming increasingly complex. Add to that the growing variety of locales and quality improving at all levels, and it's enough to leave even the savviest buyers confused. With the multitude of choices, the key to success, no doubt, is a strong sales force capable of educating consumers about all of their options. The good news for companies involved in the sector is the growing number of such consumers able to buy all of this new and improved inventory under development around the globe. For as the first baby boomers turned 60 last year, most in the industry believe the stage is set for steady growth in the category now, and for the foreseeable future.
"The reality is vacation ownership is in a sweet spot," says Howard Nusbaum, president and CEO, American Resort Development Association. Citing the power of the Baby Boomer generation-the most affluent category of consumers ever-he says the next 25 years bode well for this market. "The Boomers' idea of retirement is not sitting on the porch, it is seeing the world," Nusbaum says. "They are more affluent, plus they get the idea of shared assets- the 'pizza by the slice' mentality."
Although Americans account for 85% of the timeshare market, the appetite for shared vacation ownership is becoming more global. "Shared ownership is largest in the U.S., but I think that Asia and the Middle East will take over in several years," predicts Ken May, chairman and CEO of RCI Global Vacation Network. "If you step outside the U.S. into markets like Dubai, it is ripe with possibility. We're seeing more hotel flags-non-American flags-getting into the business. Sol Meliá is very heavily involved in Europe, Mexico and Latin America. And lifestyle brands like Bulgari want vacation clubs. There's a lot of cache to the segment."
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Growth-minded hotel companies indeed are excited about the prospects. Looking to Asia Pacific, where Australians are already very comfortable with timeshare, thanks to a growing Chinese middle class, opportunities to expand offerings in this region are on the rise, particularly in up-and-coming destinations like Hainan Island and Macau. In Europe, where consumer perception of timeshare continues to lag behind the U.S. market-the UK is an exception-the opportunity for fractionals is growing as an alternative to the wholly owned villa. And as far as condo-hotel development is concerned, it, too, has legs to grow globally- albeit somewhat more cautiously from a branded standpoint-as the market matures and the fundamentals of this complicated model are more fully realized.
Thus, the convergence of these positive fundamentals has led the major brands to ramp up their presence in the vacation ownership sector. For established players like Marriott, Starwood and Wyndham, that means expanding their portfolios into new markets and differentiating their offerings. One of the newest trends at the luxury level is the private residence club delivering fractional ownership by the likes of Ritz-Carlton, Fairmont, Four Seasons, St. Regis, among others. Going forward, this product segmentation no doubt will play well in the mixed-use model. Expect to see more clustering of product-a resort next to a timeshare property next to a residence club next to wholly owned villas.
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Spotlight Shines On Fractionals
While "there's probably more timeshare sold in Orlando in one day than in fractional in a month," as Nusbaum says, because of the growing affluence of vacation buyers worldwide, this model, in which owners average between three and six weeks of usage per year, currently is the darling of the segment. "Fractional is hot for a couple of reasons: It doesn't have the stigma of the timeshare name, and it's marketed more like a second home with amenities," Nusbaum says. Kevin Wallace, CEO, NorthCourse Advisory Services, London, adds that while the market is experiencing 40% to 50% growth, the base is small, translating only into about US$1.8 billion to US$2 billion. "And it's mostly American [money], but I think people in other parts of the world will get into it, and it will be a lot faster in the rest of the world. Wealth is growing much faster in Asia and the Middle East," he says.
That is because this buy is not so much about price as it is about lifestyle. "We're seeing a lot of traction with that product. Boomers have the income and like the convenience and value alternative to the second home," says David Gilbert, executive vice president of sales and marketing, Americas, for Interval International. "So we're very bullish on the fractional business going forward." In fact, a recent study of affluent U.S. households by PricewaterhouseCoopers found that 41% had heard of fractionals or private residence clubs and that 17% of them said they'd consider purchasing such a product in the next five years. Further, the study found that these potential buyers are more than twice as likely to purchase fractional ownership at a resort managed by a luxury hotel company. This is welcome news for the major luxury brands, many of which have launched their own private residence clubs in the last few years. These clubs offer buyers luxury home usage with all the personalized services of a top hotel.
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"Fractional fills the niche for the consumer who wants to go back to one location time and time again, wants the size and luxury of a real home-complete with full kitchen and closet space-but wants to remove the hassles of owning a second home," explains Robert Phillips, senior vice president of business development for The Ritz-Carlton Club. "It's not so much about affordability, it's about choice." In fact, he adds, many members of The Ritz-Carlton Club already own second homes, and current buyers account for 50% of the club's growth by adding another unit in the same destination or buying a unit in a second locale.
To date the club has four locations- Aspen, Colorado; Jupiter, Florida; Bachelor Gulf, Colorado; and St. Thomas, U.S.V.I.-and has announced four new destinations in just the last six months. Coming on board will be its first two urban locations in Miami's South Beach and San Francisco as well as Lake Tahoe and Maui. Two of the four existing locations are part of mixed-use developments that include a Ritz-Carlton hotel as well as full residential units. Going forward, this clustering approach will be utilized depending on locale. For example, while the new San Francisco project isn't connected to a Ritz-Carlton hotel (but there is one just seven blocks away), for an island property where the guest could feel a bit more isolated, Phillips says the mixed-use approach makes the most sense. Additional development announcements are expected later this year.
Fairmont Hotels & Resorts offers a similar product with its Fairmont Heritage Place residence club. However, in Fairmont's case, the dive into the fractional segment was not so much about leveraging the Fairmont brand as it was creating an even more aspirational product. "We saw it as a way to strengthen the brand, to create a product above the core hotel division," explains Greg Doman, vice president of vacation ownership for Fairmont. "That's why we went away from timeshare. Fractional is a young business and easier to sell. Plus the brands are capturing more of the fractional industry." The other reason Doman says Fairmont wanted to try its hand at the vacation ownership sector is that the company owns a lot of undeveloped land next to its hotels-so once again that clustering approach came into play. "We're also in this business to do more hotels-the fractional business helps underwrite those costs and makes our hotels more profitable," he says.
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With two sold-out locations in Acapulco, Mexico, and Telluride, Colorado, Doman says Fairmont Heritage Place is now the company's ultimate loyalty club, with its owners spending five to 10 times more at Fairmont hotels than Fairmont's loyal hotel guests. And while Doman sees fractional as primarily a U.S. market for now, it is one of the few brands already developing fractionals outside North America. So in addition to upcoming San Francisco and Turks and Caicos residence clubs, Fairmont also will be operating a Heritage Place in Dubai and South Africa. "The Middle East is somewhat of a test, but we're bullish because Dubai is a big UK destination, and it could be a nice alternative to the second home for the GCC market," Doman says. The project is part of a second Fairmont development-with hotel and fully owned residences-on The Palm Jumeirah. Doman also is bullish on the opportunities in South Africa, saying "fractional has really caught on there." And with its new status as a sibling to the luxury Raffles brand, Doman says the goal is to create a similar fractional product for Raffles as well. "We're already in discussions to do similar products with Raffles. We think there are also good synergies for exchange programs between Fairmont and Raffles," he adds.
Timeshare Diversifies
With Marriott Vacation Club International (MVCI) experiencing is eleventh consecutive year of 20%-plus growth, it's a good indicator of the continued buoyancy of the timeshare segment overall. But that's not to say even the successful companies are resting on their laurels. Just as the hotel brands have invested millions to upgrade their product offerings with more upscale services and amenities, so too have the timeshare operations. "The bar level is the highest it has ever been. Villas are more luxurious now with granite countertops, stainlesssteel appliances, Wi-Fi, LCD TVs and all the bedding packages as a complement to our hotel standards," says Ed Kinney, vice president of corporate affairs and brand awareness, MVCI. "The best part is that consumers' perceived value is greater than the prices we're charging. So they see our prices as making sense."
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And prices have changed quite a bit. While overall MVCI has seen a steady rise in income levels of its buyers-now with a mean income of US$127,000 a year-today consumers can expect to pay as much as US$117,000 for one week in a top-of-the-line, three-bedroom penthouse in Maui, during peak season. Compare that to a "low" of US$7,900 for a more moderate accommodation in an off-season, and the range of prices in timeshare today is somewhat staggering, yet it fits the demand of different buyers.
In terms of markets, Kinney says Hawaii continues to be very strong for the brand. Other new resort destinations for MVCI include new properties in St. Kitts as well as St. Thomas and Aruba. Urban timeshare in the U.S. market also is growing. To make timeshare work in an urban setting, Kinney says the company adapted the program so that buyers could be more flexible with how they use their week. Adapting the program to suit the market also is coming into play in Asia where growth is now a top priority. MVCI currently is developing a new pointsbased operating model for the Asian market.
Urban markets in the United States are also hot for Wyndham Vacation Ownership (WVO), according to Tim Anderson, chief real estate officer for Wyndham Worldwide. "We're already doing assets in San Francisco, New Orleans, San Antonio and Washington, D.C., and we see tremendous growth opportunities for New York, L.A. and Chicago," he says. The company also is growing in the drive-to destinations, such as the Wisconsin Dells.
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WVO experienced its best year ever in 2006, and with so much new product in its pipeline through 2009, Anderson doesn't predict any slowdown in the company's ability to grow. "We have two opportunities to grow: a tremendous ownership base that trusts us and is loyal to us, and secondly we spend hundreds of millions a year on resort development- bringing in the resort component to drive returns." Further with upgraded product, a maturing owner base with higher income levels and the strength of the Wyndham Hotels and Resorts portfolio, Anderson remains optimistic about the opportunities that lie ahead. "We know that our ownership base travels 30 days a year and that we see them six of those days. So we want to capture more share of wallet, and Wyndham hotels bring us that opportunity," he says, adding that the fractional model is also a sector the company is studying.
For Starwood Vacation Ownership (SVO), which operates timeshare resorts under its Sheraton and Westin brands, Mexico is a top priority, according to Matt Avril, president, SVO. The company currently has new developments under way in Cancun and Cabo San Lucas. "There are a lot of dynamics that make Mexico attractive for us," Avril says. "Our ownership base is largely U.S., and Mexico is seen as an extension of the U.S. market today. We'll be the first branded player in Mexico, so we think there are a lot of synergies. The consumer is looking for brand confidence."
And although time- share continues to be dominated by U.S. operators, Accor Premiere Vacation Club (APVC) is quickly gaining ground and growing its share of the market in Australia and New Zealand. The success APVC is experiencing with both its resorts and city-center apart-hotels is whetting its appetite to expand across Asia Pacific. The company plans to open its first sales center and its first club apartments in Bali in April, according to Martin M. Kandel, CEO, APVC. "As Australia and New Zealand combine for a population of less than 25 million, our growth strategy is focused on the nearby Asian markets," Kandel explains. "We anticipate entering the market in Thailand, Malaysia, French Polynesia, Singapore and India in the short- to mid-term, followed by China some time after the 2008 Beijing Olympic Games."
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Segment To Watch: Condo Hotels
While operators are extremely bullish on timeshare and fractional, when it comes to condo hotels-the talk of the town just a few short years ago-overbuild situations, fear of litigation, questionable selling practices and mostly unbranded product have tarnished the appeal to some extent. Although the brands are hesitant to dive right in, most now are testing the waters with a limited number of projects in major markets.
"There's been a bit of a glitch in the condo-hotel market. I think supply got ahead of demand in markets like Las Vegas or Orlando, but I think it will smooth itself out and adjust," North- Course's Wallace says. One setback is the lack of branded projects to date. "Eightyfive percent of the condo-hotel projects out there are unbranded," explains Dante Alexander, president of the National Association of Condo Hotel Owners. "The brands are worried about being the only one in the project in the deal three years down the road. So there are lots of legal considerations."
The brands, however, are trying to figure out ways to participate in the segment successfully. The model that Fairmont is following, Doman says, is that it will only get involved in a condo-hotel project if the developer maintains ownership of some aspect of the hotel, such as the public spaces. "A condo hotel requires significant investment on our end, once a developer is long gone, it's our brand," Doman says. "We want the developer to stay invested and be an active partner. Our most famous example of this is The Plaza [in New York City]. We've got the right partner and the right product."
The formula that Ritz-Carlton is following for its condo hotels, including new mixed-use projects in the Caribbean, is "to maintain control of 60% to 80% of the guestroom inventory," says Ezzat Coutry, senior vice president for the company.
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| Beyond North America: Development Trends |
 The Middle East is certainly one of the hottest markets; there is tremendous potential in a number of countries. Egypt is the most established market and continues to grow. Lebanon is another area for potential growth. However, in terms of greatest potential you have to look to the United Arab Emirates and in particular Dubai. Dubai has potential to become one of three global super centers for vacation ownership along with Las Vegas and Orlando. The potential in China is phenomenal. We already have a number of existing properties in the country, but the concept is still in its infancy. Product for China is one- and two-bedroom units. Popular locations in China will be Hainan (China's Hawaii), Shanghai, Beijing, Dali, Dalian and Macau. Other Asian markets where growth is expected are Bali, Thailand and India-in particular, the southwestern states of Goa and Kerala. The Indian market growth will be intra- India, which is a huge potential market, but we also see a growing international demand for higher quality product sold inside and outside India. In addition, many developers in Thailand are starting to study fractional products. There looks likely to be resurgence in the South African timeshare sector and in particular fractionals. Interval affiliated its first South African fractional toward the end of 2006 in the fashionable Camps Bay area of Cape Town. We're seeing fractionals growing in all regions of the world. There is a lot of interest in Indonesia, Thailand and Dubai. In the UK, De Vere has incorporated fractionals into its latest project, The Carrick, on the shores of Loch Lomond in Scotland. In Malta we have a fabulous property, the Island Residence Club at Radisson SAS Golden Sands Resort & Spa, and they have just launched a fractional product called The Heavenly Collection. In Portugal we have seen a trend for large, full ownership estates to incorporate fractionals into their mixed-use resorts. -Contributed by David Clifton, managing director, EMEA and Asia for Interval International. |
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