Corporate housing comes back into fashion: as a segment of the rental housing market, corporate housing has seen ups and downs track with ups and downs in the economy. Dolan explains how corporate housing has demonstrated potential for growth, and even in these down times, new opportunities emerge.
Corporate housing is defined as fully furnished and equipped apartments with housewares and linens, including utilities and available services such as housekeeping. Thirty-one percent of corporate housing units are owned by corporate housing providers, with the remaining being leased from apartment owners. (For statistics, see below.) The annual volume of corporate housing is under $2 billion, making it a relatively small segment of the lodging industry as a whole. Not surprisingly, this segment has suffered a setback over the past couple of years, along with lodging and travel overall. However, corporate housing has demonstrated a great potential for growth, and even in these down times, new opportunities are emerging.
Let's first look at the bad news of the present, and then the good news of the future.
The Bad News
Starting from a global perspective, Thomas Vincent, President of Arlington, Va.-based Bridgestreet Corporate Housing Worldwide, said that the war in Iraq has slowed corporate housing, even in Europe. Bridgestreet, the largest international corporate housing provider based in the United States, has partners in some 40 global locations. The company does not own its own property, but rather leases it. Vincent, who is also President of the Corporate Housing Providers Association (CHPA), Indianapolis, reports that the slump has been pretty much everywhere.
"With the economy the way it is, everybody is hurting," he said.
Peggy Berg, President, The Highland Group, Atlanta, Ga., a corporate housing consulting group, said, "The number of corporate housing units has contracted over the past couple of years, and that's never good news."
She added that September 11 "has cost the international travel industry enormously, all segments. Things are not as bad as the last quarter of 2001, but improvement has been slow. There are barriers to travel into the U.S." Berg said that some providers are seeing continued negative impact on business from federal security measures (and perceived measures) on international travel, as well as from Homeland Security travel alerts.
"The international gateways, such as the New York and San Francisco markets, have been hit especially hard," she noted.
While the international gateways have suffered, they are not the only places taking the punch. The heartland is hurting, as well. "The Chicago market has been one of the hardest hit," said David Flando, President of Habitat Corporate Suites Network in Chicago and Secretary-Treasurer of CHPA.
"It's all driven by the economies of the world. I hear there are pockets of cities that are doing pretty well, but the major markets are hurt the worst, and, though some see growth coming, my sense is that the Chicago market will remain flat for a while. Corporations are not relocating as much as they did in the past and aren't spending money for special projects to get things done. We mirror the hotel industry in this regard."
The same is true for much of the South. "Corporate housing has been down in markets such as Atlanta, Phoenix and Denver," said Mary J. Wessler, Vice President, Omni Apartment Communities Inc., Denver. "It's the creation of new jobs that drives corporate housing. If no new jobs are being created and employees are being laid off, you don't have the transfers to the area or the hiring of new employees" who would stay in corporate housing.
Wessler said that Omni previously did a lot of leasing to corporate housing providers, but those apartments have reverted to their traditional uses. "Most of the corporate housing companies in the area have either gone out of business or are down to almost nothing," Wessler said, adding that "the corporate housing business is cyclical, so I think it should start coming back in a year or so."
Turning to the Northeast, Thomas Flahive, of Lowell, Mass.-based Princeton Properties and Vice President of CHPA, said, "Clearly the results of September 11 coupled with the recession have hurt corporate housing. What we have found is that in our little New England market of Massachusetts, Maine and New Hampshire, which has had its economy based on the technology industry, the situation has been severe." He added that Princeton's corporate housing units come exclusively from its supply of standard apartment units, so the corporate housing units revert to standard rental units when the market contracts. "We have stabilized within the travel market, so if a rebound occurs we are well positioned, but I don't foresee much of a rebound."
Another problem, said Steve Bergstrom, Regional Vice President, Greystar Real Estate Partners, San Diego, is that, given the cost containment pressures on corporations, even when they are in the market, they press for shorter lease terms.
"Moreover, the traditional relocation attitudes have changed dramatically," Bergstrom said. "In the past, people were looking for temporary housing before purchasing a home. But since 2001 more than 50 percent of those relocating are looking to rent rather than buy." Finding it easier to locate satisfactory places to rent rather than buy, the need for temporary corporate housing has been reduced.
The Good News
The same forces that have led to the current slump are, in many respects, preparing the way for a recovery.
As Bergstrom pointed out, corporate housing began as small mom-and-pop organizations. They grew from local to regional companies and then they became national. The advantage of a national company was that a corporation, for example, in New York City, did not have to contact different corporate housing providers in New Orleans, San Diego and Seattle, but could deal instead with one national company.
Now, however, the national companies are cutting back their satellite services, which again makes room for local entrepreneurs.
"The national corporate housing provider is still a factor in the industry, which is all well and good," Bergstrom said. "But that level of service is extremely expensive to provide. Now corporations are looking to cut costs, and this opens windows of opportunity for local providers who don't have the overhead, so they can provide a lower cost solution that a national company cannot provide." Bergstrom added that the smaller provider also has more flexibility in providing shorter lease terms that corporations want.
"Quite a few new corporate providers have entered over the past couple of years, including apartment companies that want to decrease vacancies," Berg said. "Many operators have demonstrated a lot of flexibility, in responding to the direction customers are going."
Berg, whose The Highland Group researched and compiled the CHPA-sponsored The Corporate Housing Industry Report--2003, said that though corporate housing inventory decreased by 12 percent in 2001 and by 7 percent in 2002, it is expected to increase by 9 percent in 2003, and should keep growing. "This is because the general economy should start growing, and a lot of pent-up demand should be released. Relocations and projects that have been delayed will start to happen. And, since new technology will need to be implemented, there will be a need for training."
Berg also sees an ongoing volatility. The cycle swing that has brought new smaller providers into the market will, as the industry starts growing again, result in more mergers and consolidation. "We're starting to see an increase in branding," Berg said. "Smaller providers are finding ways to reach out to national companies that may have a need to provide corporate housing in those markets."
William Hoffman, President, Equity Corporate Housing, Charlotte, N.C., said the downturn "has led to a greater focus on inventory management, with more creativity in terms of handling services and providing efficiencies."
Hoffman, who said his division leases from the parent Equity Residential, as well as other apartments, also said that the poor economy is "leading corporate housing providers and apartment managers to have more dialogue with each other, with more flexibility, and looking for the betterment of both sides rather than just one's own profitability, and that's a good thing."
Habitat leases from its parent residential company and outside apartments. "Residential apartment managers have often been apprehensive about working with corporate housing," Flando said. "But they are now dealing with vacancy problems too, so it behooves both sides to work together for their mutual advantage."
A tactic Flando uses that many corporate providers do not, especially during difficult times, is leasing for a full 12 months, instead of trying to negotiate for smaller time spans. "The reason," he said, "is that there is a ton of operational costs in taking down and setting up an apartment, as well as a lot of marketing. By setting it up for a year, you risk losing whenever you don't have a client in the facility, but you also have more flexibility in putting together both long- and short-term commitments from various clients."
One success story is Gables Corporate Accommodations, a subsidiary of Gables Residential, Boca Raton, Fla., which won the 2002 Tower of Excellence Award presented by CHPA at their recent national convention in San Diego.
Gables Chairman and CEO, Chris Wheeler, reported that the corporate provider division was able to increase revenue by 24 percent and profitability by 40 percent while still receiving high marks from customers for service.
Gables Corporate, which leases from its parent company and outside apartments, is one of the few corporate providers with more than 500 units. It focuses on Fortune 100 customers.
Pam Wade, Vice President of Corporate Accommodations, said that a key component of the company's success is "the strategic alliances we have formed with property management companies throughout the U.S. which allows us to lease anywhere in the country."
Wade also said that while relocation has slowed down because of the economy, her company has been aggressive in finding other customers, especially in terms of consultants and special projects in the health care and automotive industries.
"We might place 100 people at a new automotive assembly plant for a year, while they go home on weekends, or a consulting team of 20 for six months," Wade said. "We've also found a niche working with insurance companies to provide temporary housing for people who have lost their homes due to a national disaster."
Wade added that "though the traditional relocation business has been down, it now seems to be picking up."
Corporate Housing Statistics
These statistic were provided by the Corporate Housing Industry Report--2003, researched and compiled by The Highland Group, Atlanta, and sponsored and funded by the Corporate Housing Providers Association (CHPA), Indianapolis.
* Corporate housing decreased 12 percent in 2001 and 7 percent in 2002, but expected to grow 9 percent in 2003.
* The corporate housing market is estimated at a total of 70,199 units on an average day.
* The mix of units is 59 percent two-bedroom and 41 percent one-bedroom.
* There are 605 companies providing corporate housing, including operators that have units in multiple cities and property management companies. This reflects an expansion from 583 companies in 2000, which, in view of the contracting market, is due to apartment operators venturing into corporate housing as a result of apartment vacancies, and smaller corporate housing companies starting up when national companies abandoned various local markets.
* About one-quarter of corporate housing units were owned by a corporate housing provider, while three-quarters were leased, two years ago. When inventories shrank, the number of leased units was reduced first, which increases the proportion of owned units to the current 31 percent.
* The average monthly rent for corporate housing in the United States was $2,540 in 2002, down slightly from $2,568 in 2001.
* Nationally, the average stay in corporate housing was 76 days in 2002, up from 71 days in 1999, and 72 days in both 2001 and 2000.
* Most corporate housing operators have a formal minimum term of 30 days; however a soft market and corporate demands often result in the minimum being dropped to ranges of seven to 30 days. the average minimum term in 2002 being 22 days.
* In the United States in 2002, corporate housing was a $1.9 billion industry.
Oakwood Introduces Wi-Fi in San Jose
Apartment living is going wireless. Guests at Oakwood San Jose, a 789-room silicon Valley complex catering to business travelers, are accessing high-speed Internet by the pool at the tennis courts, in the hallway and within every corner of their apartments. Oakwood Worldwide offers property-wide wireless fidelity (wi-fi) access at Oakwood San Jose.
The wi-fi system is part of the grand renewal of the Oakwood San Jose estate, which recently completed a $14.7 million renovation designed to make the property a hub for business travelers arriving in Silicon Valley.
At Oakwood San Jose, the wi-fi service went live on March 20, 2003. Access Points have been installed throughout the property to ensure users will not encounter dead spots as long as they are within the property.
Oakwood San Jose's wi-fi package, delivered by a service provider free, includes wireless, high-speed Internet access throughout the property--a much wider coverage area than nearby hotels and apartments: same day service: equipment reliability; ease of installation and use; and target speed of 384K.
Oakwood is also testing wi-fi at multifamily properties in Dallas. The wi-fi service is available to guests for only $29.95 per month or $5.95 on a daily basis--with no long-term commitment or contract to sign.
"The reaction of the guests in San Jose and Dallas has been excellent, particularly the flexible terms we are offering," said Bob Philips, Director of International Communications for Oakwood. "Regarding occupancy, it has been a benefit, particularly for our corporate housing business. We had group bookings that would have gong to hotels, had we not offered wi-fi."
To receive this service, users must have a wireless Network Interface Card (NIC), a standard feature on most new computers. Oakwood's front desk has NIC cards available if guests should need one. Oakwood has trained its customer service representatives on how to service clients and to ensure a consistent standard of service.
Did You Know?
Bringing wi-fi technology into corporate offices and business organizations is growing in popularity. A recent survey showed that 45 percent of American enterprises had implemented some manner of wireless networking as of August 2003, up from 33 percent in 2002 and 17 percent in 2001 according to InfoTech.
Hotel chain Wyndham International installed wi-fi three years ago at its corporate office and 150 of its hotels, according to a report in The Wall Street Journal wi-fi "leads to increased productivity and increases in certain so called soft metrics, such as ease of mobility and customer and vendor satisfaction." A Wyndham executive said in the report that wi-fi allows for "freer access to data when conducting meetings."
For information about wi-fi and its use in multifamily housing communities, please see the October 2003 issue of UNITS.
Thomas G. Dolan is a freelance writer based in Anacortes, Wash.