Corporate housing industry has flexibility that allows companies to adjust to shifting economy
At 2400 M St. in Georgetown, you would be hard pressed to find any traces of Bethesda-based Marriott International. No iconic red and white signage. No uniformed bellhops at the front desk. But the luxury apartment building is one of several in the District where the hotel giant leases units for its corporate housing division, ExecuStay.
Marriott is one of a few major players in the $2.3 billion corporate housing market, in which companies lease apartments in residential buildings to rent out for a month or more. These operators take care of everything from furnishings to utilities for a client base that includes relocated employees as well as government contractors or executives on assignment.
The industry largely operates under the radar, but manages to withstand a lot of recessionary pressure. The business model is flexible, with companies able to shed or shift inventory as needed, and is fueled by diverse users, especially in areas such as metropolitan Washington.
Indeed, the District and its surrounding suburbs make up the nation's largest corporate housing market with some 5,925 units, representing roughly 9.7 percent of the total 61,280 units nationwide, according to Highland Group Hotel Investment Advisors.
"You might drive by one of the nicest high rises in D.C. or Falls Church and 5 percent to 10 percent of that building might be corporate housing," said Elaine Quiroz, president of the consulting firm Corporate Housing Strategies.
She pointed out that the business model formally took shape some 50 years ago when industry leader Oakwood Worldwide began catering to long-term travelers seeking some of the comforts of a hotel stay, like housekeeping, but with the space afforded in apartments.
Relocation used to be the biggest drivers for corporate housing, Quiroz said, but it has since been supplanted by demand from travelers on temporary assignments.
In the Washington area, many of those assignments are tied to the government in one way or another, helping buoy the market in the wake of the downturn. Like many others, the Washington market has contracted, reducing inventory by 8 percent in the past year. Yet the local corporate housing segment outperformed the area's extended-stay hotel sector, its primary competition.
Average daily rates for corporate housing in the D.C. area, for example, slipped about 4.9 percent to $141 in 2009, compared with a 8.2 percent decline to $120.60 in the extended-stay segment. During the same period, the Highland Group recorded an average occupancy rate of 86 percent for corporate units, whereas occupancy in extended-stay penciled in at 71 percent in D.C., according to Smith Travel Research.
What essentially sets corporate housing apart from extended-stay hotels, such as Homewood Suites by Hilton Worldwide or Marriott Residences, is flexibility. By not being tied down to fixed real estate, corporate housing companies can be more nimble in responding to location demands.
"Most of the time we're taking small blocks of units in key demand areas around the city, both on a strategic basis and on an as-needed basis," explained H. Lee Curtis, president of Herndon-based BridgeStreet Worldwide. Demand for space, he noted, runs high in the summer, giving the company time to review and reduce, if needed, units in the fall and winter.
Quiroz stressed that having the "right units in the right buildings" is key in corporate housing. "The risk is in managing the leases, but that is far better than the real estate risk that has led some companies to fold in recent years," she said.
Marriott typically signs one- to two-year leases. The company tends to maintain long-term relationships with real estate owners for the continuity of service, said Adam Sherer, vice president of Marriott ExecuStay. One such owner is Archstone, which houses Marriott units at Alban Towers, the Flats at Dupont Circle and the Park Connecticut.
"It gives us access to a demand stream that would otherwise be difficult to get," said Donald Davidoff, head of marketing for Archstone. "Marriott ExecuStay has a whole business engine around corporate housing. For us to replicate that would be cost prohibitive."
Owners, particularly developers, generally welcome corporate housing business. In some markets, like New York City, owners have been known to employ corporate housing to bolster occupancy during a building's transition from office to multifamily to make the deal more attractive to potential financiers.
"There are developers working both in New York and D.C. that are bringing some of their experience to this area," Curtis said, noting an increase in calls from Washington area real estate owners, whose names he would not divulge. "But I don't see it becoming a prevailing condition" in D.C.
Inventory throughout the corporate housing industry is forecast to slightly increase this year, followed by more robust growth in 2011, according to the Highland Group. Demand is certainly picking up, said Curtis, adding, "As we've come into this year, we're probably up 25 percent in D.C." Sherer noted that "As government stimulus dollars were put into the system, that created a need for all different types of lodging opportunities."