On the move

By Adam Sherer

The corporate housing industry has its origins in the relocation industry, which came about when corporations realized the need to send their employees to new locations in order to better capitalize on market opportunities. Whether relocating permanently or simply spending an extended period away from home for project-based work or training purposes, employees needed new kind of accommodation that was able to meet the specific needs of working away from home.

“When you go into the apartment it's obviously a larger footprint than a hotel. They have more space and a full-size kitchen with a washer and dryer. They can go outside their apartment building and buy organic food and cook it themselves, which creates a really nice lifestyle for a guest.”
-Adam Sherer

Over the last decade, as corporate housing has developed, there are increasing places in which this type of lodging solution is helpful, whoever is on assignment. Sherer reveals that people who are in training and project type business are the top users, while relocation is another strong component of the corporate housing industry. Other firms have recognized corporate housing as an extended stay choice above and beyond long-stay hotels.

Adam Sherer, President of the Corporate Housing Providers Association, reveals that the biggest market for corporate housing is Washington DC, followed by LA, Houston, Dallas, New York and Chicago. "They're urban centers," he confirms. "And they're the locations of a lot of commerce and corporate headquarters so there's an obvious need here for standard relocation. As you hire new associates or move them within the organization, for example, you're going to need them in the main centers of business."

Sherer explains that each region has a specific reason for being a commercial housing hub. New York for example, sees a lot of interim programs during the summer for financial services firms, which drives a significant of volume in those months. Los Angeles on the other hand is driven by the movie industry and is based on temporary assignments as the production companies come in, so there are lots of people on extended assignments here.

However, while the corporate housing industry has hubs of activity there is no doubt that it has been impacted in recent years. For many years, whilst business was booming and demand was high, corporate housing providers fared particularly well. But, as for most industries, 2008 and 2009 proved to be a very tough time indeed. The housing market has experienced a particularly tumultuous period, with house prices plummeting and consumers struggling to come up with the necessary capital for down payments.

Corporate housing was a $2.36 billion industry in the US in 2009, down 18.3 percent from $2.78 billion in 2008. The industry lost half an occupancy point and 1.7 percent in average rate. Corporate housing, as one would expect, has not managed to escape the effects of the downturn, but it did fare better than many other sectors of the lodging industry. Indeed, the hotel market also saw contracting demand. According to Smith Travel Research, hotel demand dropped 5.8 percent in 2009.

In an effort to respond to the recession, every corporate housing provider streamlined its operations in 2009. They reduced inventory in order to match the decline in demand and sustain occupancy and margins. This is not unusual as the market commonly adds and drops corporate housing inventory depending on market conditions, but the changes that were made last year were the biggest that the industry has seen in the past decade.

According to the Corporate Housing Industry Report 2010, compiled by the Corporate Housing Providers Association (CHPA) in conjunction with the Highland Group, "Providers projected a 2.9 percent inventory decline in 2009, following a 5.7 percent drop in 2008, both due to the recession. However, in response to market conditions, they were in fact much more aggressive in adjusting inventory (by -16 percent) than they anticipated."

Sherer explains that as the country entered the recession, general business activity was down significantly, and obviously corporate housing was not immune to that. "There was about a 15-18 percent drop in overall revenues and units available in the industry," he says. "We're starting to see in certain areas that we're coming out pretty quickly, but we think there will be a multi-year recovery for the industry. It's absolutely impacted as corporations cut travel spend and it's been a severe hit."

Bearing in mind the difficulties the market has faced over the past couple of years, Sherer explains that corporate housing market offers a variety of options within the extended stay segment for everyone. Sherer says that people who use corporate housing units are typically independent: "It's not a hotel, there's no front desk or whole support staff there, which is a good thing for a lot of our customers who want to be independent - they like the anonymity and having their own place.

"When you go into the apartment it's obviously a larger footprint than a hotel. They have more space and a full-size kitchen with a washer and dryer. They can go outside their apartment building and buy organic food and cook it themselves, which creates a really nice lifestyle for a guest. The fact that we have fitness centers in our apartment buildings also contributes to this."

Indeed, it actually feels as though the employee has some spare time and has a place in which to enjoy it. Even if they are away from home for 30 days and extremely busy during the day, it would still be possible to have some down time in a relaxing environment. There is also the opportunity to integrate into a community and get a really authentic experience of a town, city or area that you may never have had the chance to see before.

Hotels are notoriously hard to relax in for more than a couple of nights and it is impossible to personalize that space. Using a corporate solution can make the experience much more pleasant. Sherer explains that this also impacts on employee morale and engagement: it makes it easier for employers to convince employees to go on these extended stay projects when they know they are going to be staying somewhere that they can personalise and where they have their own privacy.

"If you see the satisfaction scores across the industry they're very high and I think that's due to the level of engagement. It says 'My employer values me, understands that I'm going to be out on an extended assignment and has put me in a lodging product that makes sense. I'm going to have the space to operate and I'm going to have some work/life balance.'"

Shere goes on to explain that it is not only single people who are using these corporate housing solutions. According to CHPA's inventory around 35 percent of units are two beds and five percent are three bed units. "We also have the ability, of course, to put together all the products and services so we could rent single family homes or townhouses, so that flexibility is available when there's that special need."

And for employers? Well, explains Sherer, corporate housing allows you to ensure your employees are wherever you need them to be. "While hotels are more obviously fixed in nature, there's the option to deploy a project team in a more remote area. It is also possible to work with your corporate housing provider of choice to find a residential location that close to that work site.

"It's this distribution on demand that is almost the key component for employers. Then of course there are even some safety aspects in terms of the anonymity and being in a residential apartment, which is appealing to employers."

While the recession that has undoubtedly had an impact on the industry, Sherer believes that there will be more growth in this sector as the economy improves, which will develop nicely over the short-term period before moving into the long-term. "There will be growth in this industry again because will people look at all their options. Hotel rates will be going back up as things are getting better and there's more demand.

"There has been very little supply built from a hotel or apartment side. So if we have the ability to offer a better value than the hotels than I think we're going to see significantly more demand come to corporate housing. Within this industry we are focusing on awareness to key decision-makers to let them know that they might not be aware, but there's this segment out here that could really answer your needs on an extended stay basis."

Sherer is expecting a pretty healthy recovery for the corporate housing sector. He predicts that for 2011, there are going to be corporations that need to stop rate increases. At the same time, he says there is a need for more apartments to be built in order to meet the demand, therefore 2012 will see the upswing really kick in.

Corporate housing in numbers

• Total industry revenue was $2.36 billion in 2009, down 18.3% from $2.78 billion in 2008.
• In 2009, the industry lost almost half an occupancy point and $2 (1.7%) in average rate. It also shed 16.5% of its US inventory.
• Average one-bedroom monthly rent is $3,450 ($115/night).
• Approximately 61,280 US corporate housing units on an average day.
• Average stay in corporate housing units is 92 days.
• The Washington, DC MSA remains the largest market with 5925 estimated units including Washington DC and its submarkets.

Relocation, relocation

An argument that comes up time and time again against corporate housing is that in combination with the recession, isn't video conferencing a better prospect to travelling or relocating? "There's absolutely the potential for long-term trends, such as teleconferencing and telecommuting to have an impact on the business transient segment," explains Sherer.

"But, from us, if you think about that extended stay sector and you take one industry in particular, such as the professional service firms, the consultants. One of the things that they're always trying to work with is the fact that their business is based on talent and in order to retain that talent you have to keep it engaged. Putting them on extended assignment is sometimes challenging for those consultants with families who won't necessarily want to be on the road all the time.

"I think that could be a long-term impact. Having said that, I still think we're seeing that in order for consultants to match up with their clients, they need to send out the best client teams and draw that talent from across the talent. That will necessitate extended travel."