Commercial Investment Real Estate is the magazine of the CCIM Institute, the leading provider of commercial real estate education. CIRE covers market trends, current developments, and business strategies within the commercial real estate field.
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CCIM.COM July | August 2017 39 ospitality and mul- tifamily 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 demo- graphic 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 f inding f lexible zoning options, meaning space can account for any type of building such as multifam- ily, offi ce, retail, multi-use, or mixed-use products. Developers are moving away from viewing projects as one-offs inde- pendent of their surroundings, in favor of building complete neighborhoods. What started as a few apartments fi ve 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 option- ality is sought by both investors and users, which offers the ability to maximize highest and best use, based on immediate tenant demand. With fl exible zoning, developers and property owners are fi nding opportu- nities to implement distinctive services in major cities across the U.S., such as housing, offi ce space, pet spas, recreational facilities, and music studios. Changing Accommodations A sector showing opportunity in down- town markets is extended stay, which is beginning to expand beyond its tradi- tional function. "Extended-stay accommodation for less than 30 nights in urban markets is extremely underserved compared to sub- urban markets," said Mark Skinner, part- ner of the Highland Group. "However, we are beginning to see lodging companies develop products for guests staying one to three weeks to fi ll 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 accom- modations. Today's business travelers with long-term assignments or new employees needing fl exible housing require a differ- ent 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 fl ex- ible and learn to adapt to today's business travelers' needs. Flexibility Millennials, especially, are seeking liv- ing 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 offi ce in their hotel or apartment. Contrary to mixed-use buildings, which separate retail, multifamily, and offi ces, 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 sepa- rate 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 gro- cery delivery, fi tness memberships, and a round-the-clock concierge for the longer- staying guest. In addition to fl exible living situations for long- and short-term travelers, hotels are beginning to make the shift toward f lexible check-in and check-out times, which ease the stress of traveling. Flexible check-in and check-out times was previ- ously 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 fulfi lls a guest's desire to customize the lodging experi- ence and, overall, increases a guest's favorability and loyalty toward certain brands over others. Adaptability 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 cli- ent 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 apart- ment construction introduces new units to the market, which allows corporate hous- ing 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 corpo- rate 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 specifi c move- in or move-out days and times. Yet the extended-stay industry has been slow to adapt to these policies. Housing that pro- vides fl exibility, adapting to guests, and occasional long-term tenants through offer- ing customizable services will prove to be the ultimate key to success in this business. David Redfern is president of real estate development and franchising groups at WaterWalk in Wichita, Kan. Contact him at david@waterwalk.com.