European Consumer Demand for Shared Ownership and Leisure Real Estate Products. October 2006

Transcription

1 European Consumer Demand for Shared Ownership and Leisure Real Estate Products October 2006

2 Table of Contents Current Product Development Configurations. 3 Global Perspective... 7 European Findings... 8 Country Findings... 9 Price and Product Sensitivities In Conclusion NorthCourse Leisure Real Estate Solutions 2

3 European Demand Analysis What you need to know about consumer preferences to design the optimal product. Current Product Development Configurations Until now, there have been few factual sources for determining the optimal property configuration. The predominant methodology for optimizing product mix and price has focused on extrapolating macro-level trends, predictions, and past experiences into future scenarios. The situation is driven by the fact that no forward-looking or demand driven capabilities have existed beyond commissioning new primary research such as focus groups or surveys. Focus groups are good tool for product positioning but the wrong tool for optimizing mix or pricing. Surveys offer an advantage over qualitative work for pricing, segmentation and mix optimization, but they are only a good tool when developed properly. (The use of self-explicated purchase intentions or interest levels is an approach all but abandoned in other consumer industries.) Plus, they can be expensive and require long lead times. Our assessment is that reliance on only these methodologies has proven inconsistent in providing accurate consumer demand. Copy the competition Repeat a past success A little of this, A little of that The latest trend Final product But is it what potential buyers want? NorthCourse Leisure Real Estate Solutions 3

4 Consumers today have (and demand) many options. How can you know what they want, in what combination, and at what price? These are basic questions asked by developers everyday. Relying on trends and past experiences should not be discounted, but they only take you so far. How do you know you aren t missing out on an unmet need or a new developing trend? How can you quantitatively uncover and reliably tap into emerging trends? These are not easy questions to answer. Human decision-making is complex and difficult to accurately predict. Add together the complexities of leisure travel decisionmaking and the complexities of most shared ownership products themselves and the overall level of complexity begins to grow exponentially. Explanatory Variables Experience Decision-making involves a multitude of variables that all lead to preference. Motivation Context Time Money Attitudes Tastes Memory Knowledge Preference (Utility) Information Perceptions Constraints Process Choice (Revealed Preferences) NorthCourse Leisure Real Estate Solutions 4

5 The good news is that accurately assessing consumer demand is not impossible. By moving to new research methodologies where consumers reveal what is important to them through their decision-making (vs. what they tell us in focus groups and selfexplicated interest surveys) and past travel and holiday behavior, we can identify their preferences. At the core of this methodology is a Discrete Choice model. Discrete Choice models do not ask individuals interest levels on a scale or how likely would you be to buy basis. Instead, we are able to present real market choice situations (a simplified example: Would you buy a timeshare or continue to stay in other accommodations? ). Choice behavior across multiple scenarios, product types, and prices can then be modeled to create simulations of the consumer markets and decision drivers for the full spectrum of shared ownership products. Discrete Choice Model NorthCourse Leisure Real Estate Solutions 5

6 Demand Analysis Tool: European Version The NorthCourse European Market DAT is based on a Discrete Choice market simulator covering all forms of leisure real estate and shared ownership models. Results were developed from survey work conducted across nine major European markets: Survey Responses Market 400 Spain 400 Germany 450 France 450 United Kingdom 100 Denmark 100 Greece 250 Italy 200 Netherlands 100 Sweden The survey respondents were sampled and screened to provide many opportunities to segment the market across income levels, demographics and travel behaviors. The income segments were designed to include representation for the highest income strata at the high-end to timeshare income-eligible respondents at the low end. The results presented here are for the European market in aggregate (unless otherwise noted). Our intention is to present how looking at consumer demand side of the equation (vs. trends in supply), new insights can be revealed that can help guide European developers in terms of not only what they build, but who the market is, and how they can use forward looking methodologies to optimize pricing and marketing efficiency. NorthCourse Leisure Real Estate Solutions 6

7 Global Perspective Similar models were run for both the US and Asian markets. European interest (as compared to the US and Asia) has shifted toward models other than timeshare (although timeshare still remains the largest potential market in terms of consumers). Higher price points for condo hotels and destination clubs offer significantly higher potential total sales and revenues. Interest in Asia (across all ownership models) is significantly higher than in both Europe and the US. This may be a result of pent-up demand and/or possibly unrealistic expectations in an immature market. 35% 28% Preference Share 17% 14% 11% 7% 8% 5% 7% 2% 1% 1% 1% 2% 2% US Europe Asia Timeshare Fractional Destination club Condo hotel Wholly-ow ned vacation property NorthCourse Leisure Real Estate Solutions 7

8 European Findings In addition to the European market in total, we can view individual markets as well. For this report we focus on consumer demand differences for shared ownership among the UK, Spain, France, and Germany. One-in-three income eligible Europeans are interested in shared vacation ownership. Country of residence is a better predictor of interest across model types than any other variable (demographics, income, psychographics, etc.) 20% 15% 16% 12% 19% 10% 8% 8% 5% 6% 4% 4% 3% 3% 1% 1% 1% 1% 1% 1% Preference Share Timeshare Fractional Destination club Condo hotel Wholly-ow ned vacation property United Kingdom Spain France Germany NorthCourse Leisure Real Estate Solutions 8

9 Country Findings UK The UK is tied with Spain for the highest level of leisure real estate interest and demand. Interest and demand are tilted toward: o Timeshares o Wholly ownership vacation homes/condos One-in-five UK residents (income eligible) is a potential timeshare purchaser similar to US levels of market depth. Given existing penetration levels, this indicates the UK source market still offers significant potential. UK residents are the only group with any significant interest in Fractional/PRC products. Spain Spain is tied with the UK for the highest level of leisure real estate interest and demand (aggregate across categories). Interest and demand is also tilted toward timeshare and whole ownership vacation homes/condos, but not to the depth of the UK source market. One-in-eight Spanish residents (income eligible) is a potential timeshare purchaser. There is a higher level of interest in Destination Clubs in the Spanish market than other countries with close to 1-in-12 high-income/high-net-worth Spaniards constituting a viable prospect. Fractional/PRC interest is low compared to all other forms of vacation ownership (including condo hotels). NorthCourse Leisure Real Estate Solutions 9

10 Germany A reasonable percentage of Germans (one-in-five) have an interest in timeshare (second to the UK), but no interest in other shared ownership or leisure real estate ownership types. Most remaining interest is predominately in rental villas and condos. Taking all vacation ownership models into account, Germans are the least interested consumers of all of the major markets. France The French have the least timeshare interest (barely one-in-ten). However, compared to other markets, interest and demand for both destination club type models and condo hotels is relatively high, establishing France and Spain as the best European source markets for these models. As with Germany, most interest runs toward villa and condo rentals as opposed to ownership models. NorthCourse Leisure Real Estate Solutions 10

11 Price and Product Sensitivities The correlation of price to interest varies considerably across property types as well as markets. Potential timeshare purchasers are not highly sensitive to price, given the relative flatness of the demand curve. UK residents are the most interested in timeshares, but the Spanish are the most price sensitive. Timeshares Interest vs Price 19.50% 17.50% 15.50% Interest 13.50% 11.50% 9.50% 7.50% 12,000 12,571 13,143 Price 13,714 14,286 14,857 15,429 UK Spain France Germany UK residents are the only European consumers with significant interest in fractionals/ PRCs but they are also very price sensitive. Fractionals/PRCs Interest vs Price 7.00% 6.00% 5.00% Interest 4.00% 3.00% 2.00% 1.00% 200, , , ,714 Price 314, , ,429 UK Spain France Germany NorthCourse Leisure Real Estate Solutions 11

12 French consumers may make the best target market for high-end condo hotels. However, both French and Spanish consumers show good potential at the lower end of the market as well. Condo Hotels Interest vs Price 6.00% 5.00% 4.00% Interest 3.00% 2.00% 1.00% 0.00% 400, , , ,714 Price 514, , ,429 UK Spain France Germany Spanish and French consumers are the best market for Destination Clubs. The Spanish are less price sensitive than the French. Destination Clubs Interest vs Price 7.00% 6.00% 5.00% Interest 4.00% 3.00% 2.00% 1.00% 320, , , ,143 Price 502, , ,286 UK Spain France Germany NorthCourse Leisure Real Estate Solutions 12

13 In Conclusion Know your target market and the right product and price for making your development a success. This means selling to each market differently as well. Do not over-estimate the depth of the market by assuming rules-of-thumb from one market apply to another. Price sensitivity curves are often steep (in other words, interest drops dramatically as price increases). Therefore, do not overplay your hand by pricing too high. Understanding the optimal price point for a market is crucial. Applying product and development models from the US or other markets can get you into trouble very quickly. Rely on partners with local knowledge. This is room to grow in all categories! But smart development planning will win the day. NorthCourse Leisure Real Estate Solutions 13

14 Advisory Services Our proprietary research provides NorthCourse with an unparalleled and comprehensive understanding of the global leisure real estate industry. We produce groundbreaking reports, focusing on Shared Ownership and Mixed Use Developments for new regions, markets and business models. After registering on our website ( these reports are provided to you free of charge, to help you stay abreast of developments in the industry worldwide. All reports are backed by large datasets gathered through our research process. We can also carry out additional data mining to tailor our research results to your needs. For more information on our research services, please contact: Doug O'Reilly Vice President, Global Research Advisory Services NorthCourse Leisure Real Estate Solutions 7 Sylvan Way Parsippany, NJ USA T: F: doug.o'reilly@northcourse.com For more information on our Advisory Services, please contact: Kevin Wallace Chief Executive Officer Advisory Services NorthCourse Leisure Real Estate Solutions Landmark House Hammersmith Bridge Road London, W6 9EJ UK T: F: kevin.wallace@northcourse.com NorthCourse Leisure Real Estate Solutions 14