A Lookback at 2022 and a Preview of 2023
As 2022 draws to a close, we sat down with Ken Flornes, our Chief Development Officer to discuss the trends he saw over the past year and to offer a glimpse of what he expects in 2023.
Q. How did the corporate housing market change over the course of 2022?
A. To understand this year, you have to think about it as two halves. Let’s start with the first half. As the year began, we were still facing significant supply chain and inventory issues. Everything was in short supply. Multifamily complexes in large cities had almost no vacancies. One of the reasons: many of these cities still had pandemic forbearance rules in effect that enabled tenants to live rent free. So instead of occupancy running at 90% it was more like 97% to 99%.
Furniture was stuck in containers off-shore. You had to go to 10 vendors to get linens, cleaning supplies, etc. Cable TV installations that used to take 3 days were now taking 10. Thanks to the “great resignation”—remember that?— there were shortages of moving van drivers, porters, building managers, cleaning staff, you name it.
As I mentioned, in the first half, securing suitable units in major U.S. and international markets was a challenge. And then in February, there was the invasion of the Ukraine. Suddenly thousands of Ukrainians and expats in Russia needed temporary housing. On the day the war broke out, the Red Cross signed 5,000 leases in Poland and eastern Europe.
Global clients turned to us, and other mobility companies, to secure apartments. Fortunately, we were able to leverage long-term relationships. Primestone also put boots on the ground in markets like Poland and even Middle Eastern markets, like Dubai, to quickly re-house expats.
The second half of the year was extremely busy, because we on-boarded several major corporate clients. But overall things seemed to be normalizing. Inventory wasn’t quite as tight, and in fact we became the corporate housing partner for some major multifamily management companies.
The supply chain issues also began to abate. As we end the year, our percentage of international business has grown from roughly 15% to approximately 25%.
Q. What other trends did you see last year?
A. There were several notable changes. Lump sum arrangements, for example, fell out of favor because of concerns for safety and costs. Companies found that supply chain problems created unexpected issues that forced them to invest many times the initial lump to make their employees whole. Also, some clients began to realize that shifting the logistics to their relocating execs was an expensive distraction. For example, one client recently told me that they had a relocating exec who was negotiating with five different corporate housing providers and five different moving companies—all on company time.
As we discussed earlier in the year, COVID and concerns over safety created a shift in both the location of properties and their size. Instead of downtown San Francisco or NYC we are getting requests for Jersey City and Stamford, CT. Also, clients in general continue to upsize the units they’re taking and to ask for longer leases.
We’re also seeing some large clients rethinking their intern programs. Instead of just being in the summer, now they are ongoing year long. Companies, and law firms, with a national footprint are also shifting these programs to less expensive, midsize offices, rather than just holding them in large cities.
Coping with inflation is an ongoing challenge that clients and the multifamily housing companies are grappling with. The cost of everything is up, but particularly labor and energy costs, which are big budget items for property owners. This is driving up rents and creating issues for corporate housing firms that haven’t locked in their rates.
Q. What’s coming in 2023?
A. Recently Kristen Meglaughlin, our Director of Global Sales, and I attended the Worldwide ERC Global Workforce Symposium in Las Vegas and had an opportunity talk with several HR and mobility professionals. What we heard is that the work-from-home experience, while not over, is shifting again. Companies now expect higher paid employees to come back to the office, at least for 3 or 4 days a week.
They also confirmed that there is still a two-year backlog of committed relocations coming from overseas to the U.S. Getting visas continues to be a problem. In fact, the average move from London to the U.S. now takes about nine months from beginning to end.
In terms of economic headwinds, we’re seeing tech companies pulling back somewhat on their relocation activities. But, at the same time, we are seeing other sectors, like energy companies, significantly stepping up their relocation plans.
Supply chain disruptions in China and other offshore markets are prompting manufacturing companies to bring operations back to the U.S. Some top 50 Fortune companies are not only onshoring but they are also investing in apartment complexes in Detroit, Atlanta and Houston to house employees.
So, as we look at the market, and our pipeline, 2023 is shaping up to be another very busy year at Primestone.
By Kenneth Flornes, Chief Development Officer