What Is Corporate Housing?
Corporate housing generally refers to the practice of renting an apartment or home to corporate workers or executives on a medium-term basis. Therefore, owning corporate housing lies somewhere between operating an extended-stay hotel and leasing out apartment units for a traditional six-month or one-year period.
In this article, we’ll explore whether corporate housing is a viable alternative source of income for multifamily investors, but first, we’ll review a few facts about the corporate housing industry:
- In 2017, corporate housing revenues reached $3.62 billion, with the current U.S. supply estimated at 71,201 units.
- The average daily rate (ADR) for corporate housing units has also grown significantly during recent years, with the average night costing $181 in 2017, up from $137 in 2014, and $117 in 2008.
- In 2017, the average corporate housing customer spent 78 nights in a unit, slightly down from 2017.
- The top trip purposes for corporate housing travelers included relocation (33%), project training (21%), insurance/emergency (10%), government/military (9%), and interns (8%).
- Corporate housing occupancy rates have slowly been trending downward in recent years, from 90.6% in 2005, to 88.5% in 2008, to 86.4% in 2017.
So, Should You Start Renting Apartment Units To Corporate Travelers?
Clearly, there’s great profit potential in corporate apartments. Think about it: If you rented out a unit to a corporate traveler for 30 days at the average U.S. ADR for corporate housing ($181 in 2017), you could achieve an income of $5,430. That’s substantially higher than the $1,140 monthly average rent for a one-bedroom apartment or a two-bedroom apartment ($1,354).
Occupancy Issues and Competition
However, that doesn’t matter if the unit stays vacant for much of the year. You’ll need to market your units to large corporations, and you’ll be competing against companies that do this professionally, as well as the potentially thousands of Airbnb listings in your city.
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Corporate Housing Is Expensive to Run
In addition to the competition factor, it’s more expensive to operate and maintain corporate housing units than traditional apartment units. For instance, each unit must be fully furnished and most corporate travelers expect a certain degree of customer service, including housekeeping services.
Potential Legal Trouble
Finally, there may be legal loopholes to jump through. Many cities do not allow short-term rentals without a property owner obtaining a special permit. Therefore, you could be running afoul of local laws by hosting short or medium-term corporate travelers.
Plus, if you currently have a mortgage on your multifamily property (as most owners do), you could also run afoul of your lender by hosting corporate travelers instead of typical, long-term residents. Qualifying for a refinance using the income from temporary visitors could also be a challenge.
However, there are some situations in which corporate-style housing could provide additional income with little downside. For instance, for multifamily owners with a building currently in the lease-up phase, one company, WhyHotel, operates temporary hotels specifically for corporate travelers. In addition, it’s important to realize that utilizing Airbnb may not be all bad — especially for owners of small-to-medium size apartment buildings that may only choose to rent one or two units out in order to generate extra income.
Overall, getting into the traditional corporate housing business is often challenging — and it may not be worth it. However, for certain types of apartment owners, allowing corporate travelers to rent their properties short term could be an effective way to increase profits. This is especially the case for buildings in their lease-up period, or for those dealing with high, long-term vacancy rates.
What is the difference between corporate housing and traditional rental housing?
The main difference between corporate housing and traditional rental housing is the length of the rental period. Corporate housing is typically rented out on a medium-term basis, usually for a period of 30 days or more, while traditional rental housing is usually rented out for a 6-month or 1-year period. Corporate housing is also typically more expensive than traditional rental housing, with the average daily rate (ADR) for corporate housing units reaching $181 in 2017, up from $137 in 2014, and $117 in 2008. Additionally, corporate housing units must be fully furnished and most corporate travelers expect a certain degree of customer service, including housekeeping.
- CHPA 2018 Key Findings
- Apartment Loans: Understanding Corporate Housing
- Multifamily Loans: What is Corporate Housing?
What are the benefits of corporate housing?
The benefits of a corporate housing company are numerous. First, corporate housing can provide a higher return on investment than traditional apartment units. For example, renting out a unit to a corporate traveler for 30 days at the average U.S. ADR for corporate housing ($130.5), you could achieve an income of $3,915. That’s much higher than the $1,140 monthly average rent for a one-bedroom apartment or a two-bedroom apartment ($1,354).
In addition, corporate housing can provide a more consistent income stream than traditional apartment units. Since corporate housing is typically rented out on a medium-term basis, investors can expect a steady stream of income from corporate travelers. This can be especially beneficial for investors who are looking to maximize their return on investment.
Finally, corporate housing can provide investors with a unique opportunity to diversify their portfolio. By investing in corporate housing, investors can tap into a new market and potentially increase their returns.
What types of businesses typically use corporate housing?
The top trip purposes for corporate housing travelers typically include relocation (33%), project training (21%), insurance/emergency (10%), government/military (9%), and interns (8%), according to the Corporate Housing Providers Association (CHPA).
What are the costs associated with corporate housing?
The costs associated with corporate housing depend on a variety of factors, including the size of the unit, the length of the stay, and the amenities offered. Generally speaking, corporate housing units cost more than traditional apartment units, as they must be fully furnished and often include additional services such as housekeeping. In 2017, the average daily rate (ADR) for corporate housing units was $181, up from $137 in 2014 and $117 in 2008. The average corporate housing customer spent 78 nights in a unit, slightly down from 2017.
What are the advantages of corporate housing for businesses?
The advantages of corporate housing for businesses are numerous. Corporate housing provides businesses with a cost-effective way to house employees on a short-term basis, allowing them to save on the costs associated with long-term leases. Corporate housing also offers businesses the flexibility to quickly and easily relocate employees to different locations, as well as the ability to provide employees with a comfortable and convenient living space. Additionally, corporate housing can provide businesses with access to amenities such as fitness centers, swimming pools, and other recreational facilities.