The pandemic’s impact on commercial real estate has been profound, with demand for flexibility in office and industrial leases picking up. But the persistence of remote work is also beginning to disrupt the multifamily sector, with more renters now demanding flexible lease terms, especially in key urban markets.
An estimated 20 percent of the US workforce is expected to continue working remotely post-COVID-19, which is also driving demand for flexible and short-term apartment rentals, as remote workers seek to experience new places or travel abroad. take advantage of their freedom. AirDNA, which tracks the short-term rental market, reported that demand for short-term apartment rentals in September was up 105 percent compared to the same month in 2019. Additionally, short-term rental income set a new record in the third quarter of 2021. , up 24 percent from the same period in 2019.
Driven mostly by demand from young professionals, says Geraldine Guichardo, last year the short-term rental market saw the launch or expansion of start-ups that offer tenants for less than the typical 12- to 18-month lease period. Allows apartment to rent. Global Head of Hotel Research and Director of Living Sector Research with real estate services firm JLL.
According to Guichardo, the twin dynamics driving this trend are the shift in tenant preferences following the disruption caused by COVID-19 and landlords’ desire to maximize revenue potential. “It’s a phenomenon we’re all seeing in real estate, which we’re coining as ‘hotelization of real estate.
From an apartment perspective, renters, especially in urban centres, want more flexibility in the length of their leases given lifestyle changes and flexibility in their working arrangements. According to Guichardo, 48 percent of the global workforce is expected to live in hybrid/flex office arrangements, with smaller apartment leases allowing some workers to avoid feeling tied down with a long-term commitment.
On the landlord’s part, short-term leases can allow landlords to adjust rental rates more frequently in response to market conditions, she adds. “This creates a hedge against inflation because as operating expenses increase, rental rates can be increased in real time. In short, operationally, short-term apartments resemble the operation of a hotel.
According to AirDNA, there are currently about 1.1 million short-term rentals listed nationally, down 11 percent from 1.2 million in 2019. But the firm is forecasting an increase of 1.4 million listings this year. Two flexible, short-term apartment start-ups, June Homes and Bluegrounds, raised millions in a funding round last year and could be a significant part of this growth.
New York-based June Homes, a proptech start-up focused on providing flexible rentals in urban US markets, raised $50 million led by SoftBank Ventures Asia. Tenants can travel and rent a shared or private apartment, furnished or unfurnished, at fair market rates for one to 18 months, completing the process completely online and relocating within three hours. Huh. For credit-qualified tenants, there is no upfront security deposit.
On the landlord side, Daniel Mishin, founder and CEO of June Homes, says that his company has built an algorithm to identify apartments that are often in dilapidated units but in desirable locations. June Homes is a turnkey partner with owners that guarantees occupancy and provides marketing and management of buildings at no charge, which eliminates brokerage and management fees. It has vendors in the cities where it operates who create video tours of units, upload them to company servers and upgrade units if necessary, among other services. June Homes makes money on rental rate premiums resulting from unit improvements. The firm’s portfolio currently includes 2,500 units in Boston, Los Angeles, Philadelphia, Austin, New York City, San Francisco and Washington, DC, with plans to expand to Chicago this year.
In New York, Mishin says that units at June Homes rent out within seven days of listing.
Meanwhile, Bluegrounds, a New York-based start-up with international operations, launched in 2013 but raised $180 last year, with $140 million in equity capital from investors led by Westcap and an additional $40 million from Silicon Valley Bank. loan facility included. , The firm plans to expand to 10 new markets this year. It currently has 6,000 units under lease contracts in nine major US and nine major European cities. Greece-based Apostolos Fotinakis, chief financial officer of Blueground, says the company plans to add 3,000 to 4,000 new units by the end of 2022, entering new markets in the United States, Europe and Asia.
According to Fotenakis, since its inception, Bluegrounds primarily served business travelers, but now has a significant number of remote workers entering the area. “We have seen over the years that people are experiencing new ways of living. They are traveling more and want to be flexible – live life on their own terms,” he says, suggesting that the long-term The shift from flexible furnished rentals to long-term rentals represents a change that could over time disrupt the traditional apartment market.
Blueground rents its apartment units from landlords, redesigns and furnishes them, and then sublets them on flexible terms of a month or more for a premium rate. According to Fotenakis, the Bluegrounds have an average of 95 percent, with an average migration of several months.
The US market represents 65 percent of the firm’s business and Bluegrounds often leases units from property management companies that are located in the most popular neighborhoods of cities where it has a presence. For landlords, a deal with Bluegrounds guarantees occupancy, Fotenakis notes. And as an added bonus, tenants often fall in love with the building and neighborhood and end up signing long-term leases directly with the building owner.