Hospitality and multifamily sectors continue to surge in downtown markets as demand and population in cities increase well into 2017 and beyond. The number of young professionals is growing three times faster in downtown areas of cities than in suburbs, and 23 out of 25 of the country's largest cities are seeing growth in college-educated adults under the age of 45.
Rentals are also gaining popularity thanks to rising housing prices and demographic shifts. Couple this with aging housing stock across the country, and the market for purpose-built, multifamily rentals is better than it has been in years.
As people move into urban markets, developers are finding flexible zoning options, meaning space can account for any type of building such as multifamily, office, retail, multi-use, or mixed-use products. Developers are moving away from viewing projects as one-offs independent of their surroundings, in favor of building complete neighborhoods.
What started as a few apartments five or seven years ago now has the opportunity to turn into a service epicenter where residents and city newcomers desire a multitude of uses out of one space. A study by PwC and Urban Land Institute reveals that optionality is sought by both investors and users, which offers the ability to maximize highest and best use, based on immediate tenant demand. With flexible zoning, developers and property owners are finding opportunities to implement distinctive services in major cities across the U.S., such as housing, office space, pet spas, recreational facilities, and music studios.
A sector showing opportunity in downtown markets is extended stay, which is beginning to expand beyond its traditional function.
“Extended-stay accommodation for less than 30 nights in urban markets is extremely underserved compared to suburban markets,” said Mark Skinner, partner of the Highland Group. “However, we are beginning to see lodging companies develop products for guests staying one to three weeks to fill a niche between the three-month average stay in a corporate apartment and the four-day average stay in an upscale extended stay hotel.”
In these markets, guests are moving away from the standard hotel room to more convenient and comfortable accommodations. Today's business travelers with long-term assignments or new employees needing flexible housing require a different type of lodging that blends the high-quality service of an upscale hotel with the livability of an apartment.
However, most hotel chains are not adapting to the average traveler's needs at a quick enough pace. To keep up with the demand, hospitality and multifamily owners and managers must remain flexible and learn to adapt to today's business travelers' needs.
Millennials, especially, are seeking living situations that offer an all-inclusive, one-stop shop when it comes to services, utilities, and entertainment. Guests want the option of going down to the lobby for a cup of coffee or having it delivered to their door. They want to take laptops to the business center to catch up on work, or set up a home office in their hotel or apartment.
Contrary to mixed-use buildings, which separate retail, multifamily, and offices, multi-use integrates various offerings and amenities into one product. Some travelers only need a one-night stay, while others are looking for a year-long accommodation.
Apartment-sized rooms with separate living and bedroom spaces that offer the services and amenities of a hotel can appeal to both types of traveler. Features might include a kitchen, in-unit washer and dryer, and even services such as grocery delivery, fitness memberships, and a round-the-clock concierge for the longer-staying guest.
In addition to flexible living situations for long- and short-term travelers, hotels are beginning to make the shift toward flexible check-in and check-out times, which ease the stress of traveling. Flexible check-in and check-out times was previously a service offered to VIP guests or required a small fee, but it is now becoming a standard amenity for luxury hotel chains across the country.
The added convenience fulfills a guest's desire to customize the lodging experience and, overall, increases a guest's favorability and loyalty toward certain brands over others.
Travelers are coming into urban markets for multiple reasons, and it is important to individualize service and leasing contracts based on their needs. For example, the client may be an employer seeking corporate housing for new employees who have to undergo months of training in a major city. The Corporate Housing Providers Association reports a steady increase in corporate housing as residential apartment construction introduces new units to the market, which allows corporate housing providers to accommodate demand.
Or perhaps the tenant in an apartment for almost a year suddenly has to move out due to a new assignment. CHPA cites relocation as the main reason for corporate client stays in the U.S. In 2016, 34.2 million families included children under age 18. Among married-couple families with children, 96.8 percent had at least one employed parent and 61.1 percent had both parents employed. With a growing workforce requiring long-term relocations, residences must be able to accommodate families as well.
Today's traveler cannot afford to be tied into long lease terms with specific move-in or move-out days and times. Yet the extended-stay industry has been slow to adapt to these policies. Housing that provides flexibility, adapting to guests, and occasional long-term tenants through offering customizable services will prove to be the ultimate key to success in this business.