The temporary housing industry has changed radically over the last two years, with impacts from the pandemic, as well as the overheated real estate market, affecting both pricing and availability around the globe.
In the United States, the real estate market experienced a massive bump following the end of the lockdown. With little inventory available, it quickly became a seller’s market, with bidding wars and all cash offers becoming routine. This forced more people to consider renting as a short-term alternative to buying, until the market cooled. The trickle-down effect on apartment availability was heavily felt. Vacancy was impacted by more renters and higher occupancy rates. Almost every major metro area around the United States is still seeing its share of challenges. It is truly a classic ‘supply and demand’ squeeze which is driving up base rents for apartments and the daily rates that are offered on short term leases/corporate apartments.
Demand for corporate and serviced apartments has rebounded greatly in the past two quarters, as the pandemic fades and employers begin moving their employee populations globally. To be clear: the discounted rates seen during the pandemic are gone! Serviced apartment operators around the world are again filling their buildings. However, in many U.S. markets, temporary apartment operators have not added back their lost inventory. One contributing factor includes operators being forced to sign long term leases as apartment community occupancies are high, and landlords can be more discerning. Some operators are worried demand for the summer/fall will not carry through into the winter. Others are financially constrained by their losses over the last eighteen months. In addition, some property management companies and landlords were burned by providers during the pandemic, when certain operators dissolved their businesses and literally walked away from leases, along with apartments filled with furniture and housewares. Unfortunately, this was a scenario that occurred in metro areas around the globe, leaving building owners holding the bag for large sums of money, along with guests being forced to transfer to alternative accommodations. As a result there is an increased incidence of corporate maximums beings instituted at some properties, limiting the number of units available to third party temporary housing operators.
Adding to the situation, new apartment leases carry higher rents than the averages we saw in 2019. In a white paper published this summer, the Corporate Housing Provider’s Association states: “Over the past year, rental prices have increased greatly, in some markets exceeding high pre-COVID monthly rates. Las Vegas has shown a 44% increase in average monthly rent for a 2-bedroom unit compared to May 2020, and other cities are trending similarly. Virginia Beach has seen a 32% increase; Columbus, Ohio a 20.4% increase; New Orleans a 19.5% increase; and Kansas City a 16.4% increase. Within the past month, experts indicate that New York City has already reached its vacancy low point and is now undergoing a recovery. People are flocking back to some of the nation’s most integral cities, rents are increasing again, and the suburbs are flooded with new residents.” As a result, the number of options in many markets can be less than previously agreed upon “norms”, and rental rates can be much higher than budgets that were set in 2019.
Operational effects from the pandemic are being felt across the temporary housing industry, including limitations in service, shortages in the supply chain, and a lack of labor and staffing. We have all heard about “the butterfly effect” at some point in our lives, and today we are living through changes in outcome due to a single event. Serviced apartment buildings that usually offer breakfast to in-house guests discontinued service, and some still haven’t re-engaged. The increased cost of materials, manufacturing labor shortages, delayed shipments from China, and goods being stuck on ships off the U.S. coast, have resulted in a much-reduced supply of furniture, linens, and glassware, as well as a scarcity of replacement parts for appliances and HVAC systems. The unavailability of these items affects the setup of new corporate apartment inventory, along with the proper delivery of service for regular maintenance and repairs that typically take place for guests. People are the lifeblood of any business, and in global mobility and its service lines, this rings true even more. While staff reductions and furloughs were expected during the pandemic, the global staffing shortages taking place today are not. Workers around the world are not returning to their offices (and some never may), and many companies are having difficulty hiring field personnel specifically, delivery truck drivers, housekeepers, and the like.
On a positive note, the temporary housing and serviced apartment operators that survived (and thrived) during and after the pandemic, emerged more determined than ever to serve their clients and guests well. A customer centric mindset and an enduring sense of hospitality are driving the business decisions that are made today. Will providers need to be more creative in their approach? Yes, absolutely! Partnering with property developers before an apartment building even starts construction to get better access to apartments at lower rates? Yes, of course! Switching appliances from unit to unit, or transferring an inhouse guest in order to have properly functioning heat/air? Yes, as means to an end. Will clients and guests need to be more flexible and adaptable at times? Yes, they will! Strong, willing, and able partners, combined with a little bit of grace; that’s the formula for success as the industry goes into its next iteration.
Nomad’s aggregator business model serves our clients well in this dynamic market. We broadly source numerous partners in each requested location, upon initiation. With such a broad network, we usually provide apartment options where others may be constrained. When apartments are in short supply, we have access to hundreds of thousands of quality extended-stay suite hotels, with full kitchens. These properties are available at a variety of price points, depending on brand and location. Going into 2022, we expect many U.S. temporary housing operators to rebuild their inventory. However, they will only do so if they can achieve rental rates that cover the higher base rents, higher costs of rental furniture and other in-unit amenities, as well as the higher cost of labor. Clients should expect higher rental rates in many markets along with the additional options. On the global front, hundreds of new serviced apartment buildings have been built or converted to serviced apartment use in the last five years. Many more are in the pipeline, including some in second and third tier cities. While Europe and Asia have seen the majority of new market entrants, we are seeing some new development in Africa and the Middle East, as well. South America has seen less new construction than other regions.
In summary, Nomad does not expect this inventory squeeze to end any time soon. We forecast that higher rental rates and tighter inventory will continue; how far into the fourth quarter this demand uptick will go is up to clients and internal decisions regarding the mobility of their employee populations. It is more important than ever to strategically partner with Bristol and Nomad to provide volume projections, and focus markets, in the coming months.
Bristol thanks Heather James (CRP, GMS), EVP/Partner at Nomad Temporary Housing, for furnishing this comprehensive assessment. Nomad is a 2020 winner of Bristol's Partner of the Year award in two categories: (1) Temp Housing AND (2) Technology Partner of the Year awarded for market-leading technology systems that enhance the employee experience and overall service levels.
Heather is based in San Diego, California and may be reached at: 619-313-4300 | firstname.lastname@example.org