Supply Slowdown Powers Corp. Housing Rates

Following a record year in 2006, corporate housing supply grew just 1.4 percent last year, though the figure belies the fact that industry inventory is now at its highest recorded point, according to the 2008 Corporate Housing Industry Report, conducted by Atlanta's Highland Group and the Corporate Housing Providers Association. An estimated 77,799 units were available in 2007, well above the industry's previous peak of 76,400 in 1999.

This growth is in line with the hotel industry, which saw U.S. room supply rise 1.3 percent and demand increase 1.1 percent, according to Smith Travel Research.

Meanwhile, corporate housing revenue climbed 20 percent from 2006 to $2.95 billion, according to the report. In light of the cooling economic climate, 2008 growth is expected to be temperate.

"Corporate housing is really an industry that responds to the economy," said Peggy Berg, president of the Highland Group. "The actual numbers are up; it's just that the pace of increase has slowed down. The number of units has grown, but it's not gaining as fast and that's a function of the economy, as it softened in the last half of 2007. It's reasonable to look at a very slow growth or fairly static year in 2008."

Occupancy in 2007 remained steady at 90 percent, while average daily rates rose 11.5 percent to $116. New York's $229 average daily rate —up 26 percent—pushed up the overall average daily rate.

The report called corporate housing average daily rates "favorable" in comparison to the overall lodging industry, which includes extended-stay products. The hotel industry had 1.6 billion room nights available in 2007, a number that increases every month, according to Smith Travel Research. "If you multiply that by the occupancy, you get roughly a billion room nights that were sold," said Jan Freitag, vice president of global development for Smith Travel Research. "At the same time, with rates increasing the way they have, it probably is not too far of a reach to say that if you multiply these high rates by 30 days, then compare it to a corporate housing product where you sign a lease for a month, those rates will show a competitive price advantage for corporate housing."

Boston, Memphis, Minneapolis, Raleigh and San Diego were strong growth markets in 2007, while Dallas-Fort Worth, Kansas City, Mo., and Orlando lost inventory. The report noted that areas commonly gain and lose inventory "depending on the immediate needs of governments and corporations in the vicinity." Given the upcoming U.S. presidential election, Highland Group's Berg predicted an influx in Washington, D.C., in 2008, as well as in Boston, San Francisco and the Pacific Northwest, should the "high-tech segment of our economy continue strong."

Berg noted industry consolidation as another factor behind corporate housing's strong performance over the past few years.

"This certainly doesn't show up in the data, but there's also been a real strengthening of professionalism that's made it a more viable kind of lodging for business travelers and corporate travel agencies to use," she said, particularly noting Marriott's ExecuStay offering.

Corporate housing providers also are using technology to continually improve their businesses.

"They are increasingly sophisticated about using the Internet to market their product," according to Berg. "They also continually improve their use of technology for back office and business functions, such as billing to make their services more accessible and convenient for their customers."