Tech companies and extended-stay hotels offer solutions to relocating workers.
Rental prices in the U.S. have increased rapidly during the past three decades to a median of $2,000 per month. This is higher than what was seen before the pandemic in most major cities. Rental prices have increased significantly in metropolitan areas that saw large influxes of new residents during the pandemic, but the hot rental market is affecting almost everyone and every place.
While the U.S.’s affordability crisis is not new, it has grown dramatically in recent months as people returned to big cities, and some areas short on housing availability saw a surge of newcomers. The demand for rentals has increased dramatically, with many would-be homeowners quitting the market since mortgage rates rose this year as a consequence of the Fed’s aggressive interest rate hikes.
Bidding wars, which were formerly confined to the homebuying market, are becoming more common for rentals as inventories get tighter. With the rise in costs and lack of units, landlords now have the power to raise rents across the board. The end of the eviction moratorium and lack of rental assistance has led to people being put in difficult situations.
Renters are remaining in their homes at a higher rate than usual, sending apartment occupancy rates to near 20-year highs. The low turnover rate means there are fewer apartments available for people who want to move. However, the problems are gradually being addressed. Over the next year or so, approximately 1 million additional rental units are expected to enter the market, which may help to relieve some of the strain.
A tight rental market can cause issues for workers and companies that rely on corporate housing models for short- and mid-term stays. Employers are getting creative to find places for their relocating workers to live. The employer-landlord model is become popular, particularly in tourist-rich areas that couple pricey real estate with low-paying hospitality jobs.
Some employers are even building housing for their workers. Dollywood has constructed a 750-bed residence hall for use by its foreign students on cultural exchange visas and seasonal employees employed by local companies. There is an urgent need for medium-term lodging in higher income brackets as well.
Other companies that usually rely on traditional corporate housing have also been turning to hotels to fulfill their housing needs.
Extended-Stay Hotels Offer an Affordable Rental Option
Extended-stay hotels have become increasingly popular with business travelers in recent years. The full-service hotel model that rose in popularity in the midcentury, with room service, a pool bar, and other high-touch amenities, is now only available to those who can afford luxury products. Many hotel owners have reduced their offerings, so hotel guests who stay for an extended period of time and are on any kind of budget often have to settle for a room with little to no amenities.
As other hotel categories struggled to stay half-full in 2020 and 2021, extended-stay hotels had an occupancy rate of 74% and 73%, respectively. The Blackstone Group has invested more than $7 billion in two extended-stay hotel projects during the last two years. According to Ryan Meliker, president of the hospitality consulting firm Lodging Analytics Research & Consulting, extended-stay hotels are twice as profitable as regular hotels. Meliker told the Wall Street Journal that they’re reliable money-makers, and added, “They’re like ATMs with a roof.”
Long-stay guests are a hotel’s dream come true. Long-stay guests reduce vacancy, save labor, and avoid pricey hotel taxes after a certain number of days in residence. According to an industry analysis by the Highland Group, the number of extended-stay rooms has increased by more than 50% since 2015. There are now 560,000 extended-stay rooms in the nation, comprising 10% of all hotel room stock.
Extended-stay hotels are popular among business professionals who often travel, as well as universities and ski resorts that need to provide housing for seasonal workers. Extended-stay hotels are likewise a home alternative for people who have been priced out of the market. In 2019, 45% of stays at low-cost extended-stay hotels in Gwinnett County near Atlanta were a month or longer- frequently an indication of residency. The number has now increased to 67%.
Extended-stay hotels are also seeking to compete with Airbnb for wealthy customers. Airbnb rentals lasting more than a month more than doubled from 2019’s first quarter to 2022’s first quarter. The short-term rental platform is frequently accused of depleting the long-term housing stock, but it is merely a symptom of a larger problem. Many individuals desire to stay in cities for middling periods of time and have various demands for amenities and privacy, so the peer-to-peer rental market provides what they want.
While some may see Airbnb as a threat to the hotel industry, others believe that it serves a purpose that hotels do not. There are few alternatives for inexpensive mid-length hotel stays in many urban districts. For single people, especially those looking for longer-term options, family-size houses and apartments are often the only units available. This practice then, in turn, deprives families of a place to live in the city.
Traditionally, hotels not only provide an exit strategy for people leaving traditional housing, but hotels also create an entry point into the market. Staying in a hotel is a great option for those who are new to the city and need a place to stay for an extended period of time as they search for more permanent housing.
In addition to more “traditional” solutions, tech companies have entered the corporate housing industry to offer high-tech lodging solutions.
Tech Companies Work to Disrupt the Corporate Housing Industry
With its recent $125 million investment, subscription-based lodging operator Landing plans to expand its U.S. presence. As workers move from city to city,his t reflects a “flexible living” appetite within many companies. Landing is the most recent large deal in the sector, following a new project from WeWork’s controversial co-founder. Adam Neumann raised $350 million for Flow, one of the up-and-coming apartment companies that propose a hybrid model of lodging comprising short-term and long-term stays.
The corporate sector’s growth has also been a boon for Blueground, which says its target customers are digital nomads, business travelers, or anyone who wants to explore somewhere new. It has a portfolio of 9,000 apartments spread across 26 different cities that rent out rooms or entire flats for stays lasting 30 days or less. The company plans to expand to 50 cities over the next six years.
According to Blueground, their app users can book apartments within minutes, as well as manage their entire stay through the app. Blueground for Business typically helps corporate clients with stays of four months, and it has a clientele of 2,000 companies, which include Google, Amazon, and Uber.
Blueground for Business is in higher demand than ever before and now comprises 40% of its total business. The division has seen a significant increase in growth over the past year and is projected to reach $140 million in revenue by the end of this year. This would be a 3.5 times increase from 2021.
These kinds of short- and long-term lodging tech companies are becoming increasingly appealing to both businesses and individuals who want to rent in a new city without being tied down by a traditional 12-month contract or mortgage. They allege that their services are useful for real estate investment trusts, landlords, and property managers, as they make it easier to find vetted renters, and use apps to create ready-made communities.
In 2019, Landing claimed to have pioneered the first “flexible living membership” model, allowing members to move from city to city and keep using its network with only a two-week notice. The company is now focusing on the business sector, with its new corporate housing initiative. Currently, Landing has 20,000 apartments in 375 cities around the world.
Landing apartments are a great option for corporate housing because they have on-demand booking capabilities and a single platform that shows all reservations. This makes it easy for business travelers to find the perfect place to stay. In the past year, the company has seen 380% more members join, and since it launched in 2019, those members have 2.4 million combined nights staying in its apartments.
What an Evolving Corporate Housing Market Means for the Mobility Industry
Lower house prices and less competition will make it easier for relocating employees to find and buy a new home. But relocating employees who wish to rent may struggle to find available units and affordable rental fees.
Fortunately, alternative housing solutions are available to bridge the gap. Extended-stay hotels have risen in popularity with business travelers, and tech companies have raised millions of dollars in the hopes of disrupting the traditional corporate housing market.
Are you interested in learning more about the future of the housing and real estate industry? Worldwide ERC® is hosting a panel of experts to discuss housing industry trends and updates at the 2022 Global Workforce Symposium in October.