The COVID-19 crisis officially ended in April when the U.S. government declared that the emergency was over. But the corporate housing industry had reached that conclusion long before that based on what Ken Flornes, our Chief Development Officer, has been observing in the market.
We had an opportunity to sit down with Ken recently get a sense of what he saw in the market in the first half of 2023 and what he expects the rest of the year to look like.
- When you say COVID-19 is in the rearview mirror, what exactly do you mean, Ken?
The pandemic dramatically changed the corporate housing market. First it froze it. Then as is always the case with our industry, we rose to the challenges and came up with solutions that solved for problems we’d never really encountered before: personal safety of course, relocation in a work from home environment, major supply chain and housing inventory shortages, etc.
Over the past three years, corporate clients have demonstrated extraordinary flexibility and creativity. Many moved away from traditional policies, like lump sum relocation packages, and shared apartments. They were also patient when timelines slipped due to supply chain shortages or delays in securing a specific unit, for example.
But now we’re seeing these pre-COVID policies returning. Lump sum programs are the norm again and we’re seeing some clients going back to the roommate system again. This is particularly true with intern programs. In some cases, like lump sum offers, there are some new flourishes, like point systems, that give relocating executives more leeway in how they want to spend the money. But the market is starting to look a lot more like 2019.
In 2021 and 2022, there was a significant backlog of relocations that had been delayed during COVID, so the volume industry wide was higher than usual.
Now we’re seeing the level of relocations reset to more normal levels.
- How have the layoffs in the tech and financial space affected relocation?
Both sectors accounted for a significant level of activity last year. And both have dialed back their relocation activity in the first half. But there are still a number of relocations underway and anticipated in the second half.
Global trends, like moving semi-conductor production from offshore to here in the U.S., are driving some of this activity, as is the political climate in certain markets, like China. One large tech player, for example, is relocating people out of China and into India.
Also, there are niches within the tech space, like AI and cloud-computing, that are very hot at the moment.
At any given time, one sector is going to be up and another down. It’s just the nature of the corporate housing industry. I just recently came across an article that reported a large communications company is mandating that all of its 60,000 employees return to its major hub centers, and that this could mean 9,000 relocations.
- What trends are you seeing closer to home in the U.S.?
We’re seeing the continued migration of companies into lower-cost, more business-friendly states like Texas and Florida. And in some cases, this is creating inventory challenges. In Florida, for example, occupancy levels of 90%+ are the norm just about everywhere.
Corporations are continuing to relocate executives into suburban areas near major metro markets, like San Francisco and New York. Last summer, there was plenty of apartment inventory in Stamford, for example, now prime buildings are 98% occupied.
Rising mortgage interest rates and housing prices are also headwinds in the relocation market. It’s hard to ask an executive with a 3% mortgage to move to another market, pay more for the next house and then buy it with a 7% mortgage.
