Is Corporate Housing A Viable Market For Multifamily Investors?
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 6-month or 1-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?
Maybe-- but, then again, maybe not. Clearly, the potential for profit is high. For instance, if you were to rent out a unit to a corporate traveler for 30 days at the average U.S. ADR for corporate housing ($181), 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). However, that doesn't matter if the unit doesn't go rented 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 thousands of Airbnb listings in your city.
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. 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 1-2 units out on the service in order to generate extra income.
Overall, getting into the traditional corporate housing business is often challenging-- and 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 especially the case for buildings in their lease-up period, or for those dealing with high long-term vacancy rates.