We don’t need to tell you that commercial real estate investment comes with its share of risks, many as a result of market volatility. Maybe it’s the rise and fall of interest rates. Perhaps it’s an uneven demand for commercial leases. Sometimes, it’s a rapid change in workplace dynamics. However, investors aren’t tied to models that put them in the line of fire of this volatility. It’s why corporate housing is growing in esteem amongst investors as a more reliable cash flow generator that bypasses commitments to long-term leases and the below-market rents they tend to lock in.
What is Corporate Housing?
Unfamiliar with corporate housing? It’s a term that encompasses residential units, often furnished, that are leased purely with mid-term stays in mind. These units are reserved for company use, frequently to house employees for anywhere between one and six months. Corporate housing can be used to effectively satisfy the diverse needs of:
- Corporate consultants
- Medical staff
- Production teams
- Relocating executives
- Traveling professionals
How does corporate housing differ from other short-term rentals? For one, the terms are typically structured through corporate agreements or in-house relocation services. But, perhaps more significantly, they’re operated with an expectancy for longer occupancy periods than traditional short-term rentals.
A Near-Constant Need
Consistent occupancy demand is arguably the chief way that corporate housing provides stabilized cash flow for investors. Traditional multifamily leasing often grinds to a halt amidst economic instability, but temporary housing options tend to weather these financial storms. Part of this is due to companies carrying on with employee relocations, staff projects, and drafting in specialized experts. In Los Angeles, where industries like entertainment, aerospace, technology, and healthcare rely heavily on the availability of corporate housing, investors of short-term rentals enjoy a certain insulation from reduced consumer confidence.
Financial Flexibility
Because of this near-constant need for corporate housing, these units also tend to reduce vacancy gaps. Mid-term leases allow a degree of flexibility, giving owners allowances for more frequent price adjustments than standard annual leases. Yet, these units also bypass the high turnover rates of nightly rentals. While long-term tenants can delay their moves or leverage uncertain economic periods to their advantage, the flexibility of the corporate housing model favors investors by maintaining income levels.
A Team Effort
Payments are also more reliable thanks to the employer backing of corporate housing leases. Even in situations where a business doesn’t take direct responsibility, these leases are regularly supported by relocation companies and housing providers. In short, investors rarely rely on the financial responsibility of an individual tenant.
Blanketing the Cycle
When it comes to portfolio diversification, corporate housing can also be incredibly useful in smoothing income across the more traditional leasing cycles. Peak leasing season doesn’t dictate the cycle of these short-term rentals. This is especially true in a city like LA, where medical studies, production schedules, and executive relocations can happen at pretty much anytime. Investments like this can help to unplug owners from the same old routine.
The Price of Reliability
However, investors need to be prepared to put a significant amount of upfront funds into corporate housing. Considerations include utilities, furnishings, and a more engaged management style than a standard long-term leasing situation. Yet, when traditional leases hit a downturn, corporate housing is more likely to remain financially resilient. And it’s hard to put a price on that kind of security.
