When corporations send employees to business destinations on extended trips, they must decide how to house them. A hotel, no matter how comfortable it may be, can never provide the feel of a home. Moreover, staying in hotels on long or frequent travels can significantly increase a business’s overhead. This is why corporate housing is becoming an increasingly popular option for many companies and entrepreneurs.
What is corporate housing?
The term corporate housing, also known as executive apartments or serviced apartments, refers to fully furnished temporary housing. It’s short term rental housing, which includes basic services and amenities such as a washer and dryer, maid service, and a full kitchen. Corporate housing is usually located in condos or apartments, with average stays ranging from two to 12 weeks.
Potential users of corporate housing
Although this market subset began as a way to provide temporary housing for business travelers, corporate housing now attracts a wide range of people who are looking for short to medium-term accommodation.
According to a report published by the Corporate Housing Providers Association (CHPA), almost 40 percent of extended stays are corporate executives who are relocating. While they are key constituents of this market, clients for short term housing now come from a broad spectrum of fields, including:
- Project managers working in manufacturing or construction
- Energy experts in the field of oil and gas exploration or renewable energy
- Medical researchers, travel nurses, doctors and other participants in the healthcare industry
- Film crews, stage performers and executives in the entertainment business
- Military and government officials
- Auditors, researchers, and analysts in the banking and finance industry
- Professional service providers, such as corporate consultants
- Technology executives, such as IT programmers on a contract
- Interns, such as business interns or medical interns
- Adventure travelers on an extended vacation
- Temporarily displaced homeowners whose homes are under repair or renovation
A survey by CHBO (Corporate Housing by Owner, Inc.) found that 17 percent of landlords offering corporate housing enjoy an annual occupancy rate of 95 percent, while 15 percent of landlords had an occupancy rate of 90 percent. Only about 12 percent had an occupancy rate below 60 percent, while about 10 percent commanded a 100 percent occupancy rate throughout the year. Most of the properties were in the bracket of 80 to 100 percent occupancy rate, which is fairly extraordinary for the rental market.
Why should you invest in corporate housing?
Before you invest in a rental property, you should evaluate the market opportunity as well as any advantages a particular segment offers over others. Consider these potential benefits of investing in corporate housing when choosing an investment strategy.
Type of clients
In a traditional rental property, a key challenge is dealing with tenants who may come from different backgrounds and present unique issues. Tenants who pay late, make unreasonable demands or complaints, or fail to take care of your property can eat up a lot of your time and resources.
Managing corporate apartments minimizes these concerns because the clients are typically professional companies or organizations with a solid reputation. Their employees or associates, the actual occupants of your property, will usually have an awareness that their behavior in your unit reflects on their employer. Treating your unit poorly or damaging it could cost them their job.
Corporate tenants are mostly well-organized when handling the financial aspects of their rental, and payments are on-time and hassle-free. Business travelers focus on their work, and may often come without family. These attributes can serve as an indirect advantage in terms of lower maintenance and repair costs and minimal administrative supervision.
Less time-consuming to manage
Popular temporary rental property websites such as Airbnb require the landlord to spend a considerable amount of time in follow-ups with guests before and during their stay. With corporate rentals, tenant follow-up is minimal because these occupants typically stay for at least four to 12 weeks, which cuts down your annual tenant turnover.
Companies that regularly use corporate housing know the process and have experienced people on staff to engage with property owners. As a real estate investor, this can save you valuable time and effort that you could put to good use elsewhere.
Sustainable relationships and revenue
One of the major advantages of investing in corporate housing is that you will have an opportunity to build relationships with companies for the long term. When their employees travel to your location for assignments, training, or projects, they will place them in your rental.
Companies don’t like to change their service providers without reason, preferring instead to invest in relationships. Often, to add a new provider, they must go through a time-consuming internal approval process. If you are committed to making your investment prosper, you will have an opportunity to build long-term relationships with prime corporate clients for your property.
How much can the clients save?
To get an idea of the kind of value proposition corporate housing offers to potential tenants, consider these figures. In New York, the average cost of a hotel room in 2015 was $254. In comparison, the average price of a Manhattan studio through corporate housing was $165 a day. That represents a savings of about 35 percent. Even for a one-bedroom apartment, the occupant would have only paid $213 a night, on average, through corporate housing. That still saves the corporation about 16 percent when compared to a hotel.
Data for the same years shows that in San Francisco, the client would have saved 22 percent for a studio and 10 percent for a one-bedroom apartment, and in Chicago, their savings would have been 35 percent and 23 percent, respectively. On top of that, corporate housing is usually tax-free for a minimum stay of 30 days, which could mean additional savings.
How much can you make?
How much you can make when renting to corporate clients depends on your local market, the number of business travelers to your city, and the presence of major corporations. All of these will impact both the demand for corporate housing and the profit you’d make.
With an occupancy rate of 90-95%, you’re smoothing the standard 10% vacancy rate for rental properties over the year. In New York, if you rented a studio to corporate clients, assuming an occupancy rate of 90%, you’d gross $54,202 a year, or $4,500 a month.
Depending on the neighborhood you rent in, this could either be above market rents or just meet them. Even if a corporate rental didn’t generate more income than a yearly tenant, it could still be worth it to convert the unit to corporate housing due to reduced wear and tear.
Maximizing Revenues with a smart rental strategy
Like any other property rental market, the corporate housing market is flexible and versatile. Carefully analyze the demand in your area for these types of properties, while assessing your own property’s occupancy abilities and unique selling proposition, before deciding to rent to corporate clients.
Depending on your market, you may also consider customizing your corporate housing rental property to meet the specific needs of a long-term client or a set of corporate clients that could benefit from it. You can maximize your profit margins by thinking ahead and going the extra mile to outshine your competition.
Under the right circumstances, corporate housing could prove a more profitable real estate investment strategy than renting to traditional tenants. You’re providing housing solutions that meet real market need.