Inventory Management is the Key to Success
By Anuradha Kher
The corporate housing industry in the United States is bigger than it has ever been. According to the Corporate Housing Providers Association (CHPA) research conducted by the Highland Group, a hotel consulting firm, it is estimated that there were a total of 77,799 units in 43 U.S. MSAs (Metropolitan Statistical Areas) on an average day in 2007.
Some industry insiders say this is the best time for the industry since it took off in the 1980s. Gavan James, senior vice president and general manager of Oakwood Corporate Housing, observes that corporate housing can be a leading indicator for economic change. "On the one hand, due to the housing crises, people are moving less, but on the other hand, some companies are shutting down offices and moving people, which is increasing the demand for corporate housing," explains James. "Also, companies tend to (continued on page 18) hire more consultants and auditors during troubled times and this increases the demand for corporate housing." James adds, "There isn't so much a decline m demand as much as a shift in patterns in the corporate housing industry."
Yet, it is also true that corporate housing is up against many challenges, from an anticipated drop in demand due to the housing crises to the competition from extended stay hotels. For providers, it might all boils down to how they manage their inventories.
There are two kinds of corporate housing units in the industry: units owned by the housing provider, or units that are rented (leased) and equipped by the housing provider.
Chicago-based Habitat Corporate Suites Network has 500 core units but also does lease matching when required. Recently, due to a decrease in demand following the housing crisis, the company dropped 15 units from its leased portfolio and is not actively pursuing any inventory.
"Vacancy is your biggest profit-killer," says Dave Flando, president of Habitat CSN. "More vacancy is equal to more expenses. Occupancy is what drives this industry. The first thing to go are the units that are not owned by the provider"
In 2007, corporate housing was a $2.95 billion industry in the 43 Metropolitan Statistical Areas (MSAs) reporting - up 20 percent from $2.46 billion in 2006. The industry's inventory contracted during the recession and post-9/11 period but by 2006, the market exceeded its pre-recession peak of roughly 76,400 units. Growth then moderated and the industry has been gaining at 1 percent to 2 percent annually since.
However, depending on the pace of the economy through this year, the industry may contract slightly, according to the Corporate Housing Providers Association's 2008 study conducted by the Highland Group.
"This is not a high-margin industry It is a lot of hard work and it all boils down to how well you can manage your inventory," says Flando. The smartest way to do that, he says, is to stagger the leases, "I am cautiously optimistic about the coming months."
While corporate housing has been around since the '80s, the industry did not have a formal association until 1996, when the Corporate Housing Providers Association (CHPA) was informally established. Today, it is a professional resource and a network for corporate housing providers.
CHPA President Ned Scharpf, who also owns Washington, D.C.-based Corporate Apartment Specialists, says the industry is quick to feel the shifts in the economy "In order to minimize losses, my company is diversifying into extended stay hotels, which are posing as a big competitor to corporate housing in a lot of areas of the country."
Scharpf's company does not own any inventory, which he says can be positive and negative. "You can grow and shrink the number of units as needed, but on the other hand, you are at the mercy of property managers."
With 22,000 units of its own in the U.S. and access to an additional 1,800 apartment buildings, Oakwood Worldwide is hedging its risks. The company is not only one of the oldest providers of corporate housing in the country, but also one of the largest players in the industry.
"In the late '80s and early '90s, 85 percent of corporate housing providers were third-party providers," says Gavan James, senior vice president and general manager of Oakwood Corporate Housing. "We used this model to go nationwide."
In recent times, corporate housing has also started competing with the hotel industry. Interior appointments are becoming more upgraded. There are high thread count sheets, upgraded interiors, sleeker furnishings, upgraded China, large flat screen TVs, cable, Internet etc. "We are keeping up with the hoteliers and surpassing them in the price area," says James.
The industry is also beginning to buy its own furniture instead of renting it. Oakwood, for example, owns 35 to 40 percent of furniture in its long-established buildings in the U.S. and owns all the furniture in its overseas units. The company has 3,000 units overseas and in the next three years, it pains to take this number to 6,000.
Challenges
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Cost of moving and storing appliances, furniture, decorative items, etc.;
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Increasing competition from extended stay hotels;
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Taxing and zoning laws;
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Legislation on minimum stays in cities like New York; and
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Managing units in a way that minimizes losses due to vacancies.
Trends
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Nationally, the average stay in a corporate housing unit was 81 days in 2007, up from 77 in 2006, but close to 2005 at 82 days.
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Overall occupancy in the U.S. corporate housing industry was 90 percent in 2007.
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Memphis, Minneapolis, Raleigh, Boston and San Diego were strong growth markets in 2007.
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Orlando, Kansas City and Dallas-Fort Worth were among markets that lost inventory in 2007.
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The outlook for 2008 is positive, according to the CPHA report.
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Slightly more than a quarter expect a flat market while 18 percent are in MSAs where they are concerned about a decline.
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From high thread count sheets and large flat screen TVs to sleeker furnishings and premium cable TV connections, corporate housing units are becoming more and more high end.
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More corporate housing providers are now buying the furniture in corporate housing units.
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Businesses and consulting firms are inviting corporate housing providers to make proposals to them
International Growth Regions
Company Overview
