The Short Term Corporate Housing Business
By Jeff Duda of http://PanamaCasa.com
The short term corporate housing business is a fast growing segment of the real estate industry in many metropolitan areas. This growth is Propelled by a growing number of business travelers who prefer to stay in well located, professionally managed apartments as an alternative to staying in expensive hotels.
Panama City is facing with the challenge of accommodating the increasing number of business travelers that pour into the city each day under the spell of the current economic boom. The city is fully embracing this new trend which represents not only a less expensive housing alternative for the overseas visitors, but also offers an interesting investment opportunity. This sector is wide open to corporations and individuals willing to invest in short term rental apartments as a safe and profitable vehicle to stake their claim on Panama’s Real Estate riches.
Business travelers with extended work contracts in Panama not only avoid expensive hotel bills by staying in an apartment, but are able to start working as soon as they arrive in town without wasting valuable time establishing a place to live. There is no need to store their belongings each time they leave on short trips knowing that they will be coming back to their own “home away from home” providing comfort and continuity. They can contact companies such as Panama Casa for a large number of options of available apartments.
Corporations such as HP, Procter & Gamble, Caterpillar and other multinationals are continuously opening offices in the city to take advantage of the growing business opportunities in the region. As the canal expansion and other multi-billion dollar mega-projects move forward, demand for short term corporate rentals in Panama have no where to go but up, and at a very brisk pace well into the next decade.
THE COMFORT OF CORPORATE RENTALS
A corporate rental offers much more than just a room to spend the night: the rent usually includes full utilities such as electricity, telephone (with certain limitations), cable TV, high speed Internet and weekly cleaning services. Apartments are well appointed, with TV, business center, hotel quality furniture and fully equipped kitchens and appliances that further contributes to check travel expenses.
However, not all apartments that are rented for short periods qualify as “corporate”. To achieve the rental rates that corporate rentals command, apartments must first be well located (which is in line with the best practices in real estate investing). The most sought-after locations in Panama are the busy downtown financial district and along the oceanfront. Other appealing areas are El Cangrejo, (although it is somewhat noisy), San Francisco and Costa del Este are quieter areas, but living there requires access to a car, Panama City driving, and time-consuming commutes downtown.
Proximity to a hotel is an advantage since they offer convenient access to bars, cafeterias, gyms and other amenities.
Outfitting the apartment for the corporate traveler is best achieved by someone with an understanding of the corporate world rather than an interior designer. Apartments must be carefully appointed with high quality functional furniture. Design follows function. Bedrooms must be large enough to fit a king-size bed comfortably. On average, furnishing a one bed apartment including lighting, kitchen appliances and A/Cs will cost under $20,000.
A TALE OF ONE CITY
Panama is in an early stage of growth and corporate short term rental rates are still reasonable, running from $2,000 to $3,000 per month for a one bedroom apartment located in a prime oceanfront location. A two bedroom apartment can still be found for only $2,600 to $3,600. In comparison, a New York one bedroom corporate apartment costs $5,000 per month and up, and a two bedroom apartment $7,000 or more.
The availability of apartments in the city for short term stays has increased steadily during the past couple of years although demand still far exceeds the supply. Occupancy rates for this specialized area of the rental business currently run above 90% even during the low months. Clients must book two or three months in advance and large numbers of them are being turned away due to the shortage of apartments.
Some apartments are owned by corporations operating in the sector, while many others are owned by individual investors who buy prime apartments as an investment and hand them over to professional property managers who set them up and manage them as short term corporate rentals.
CORPORATE RENTAL OWNERSHIP
Perhaps the most important factor to be taken into consideration when considering investing in this business is finding an experienced manager capable of providing top quality property management services that can effectively handle specific needs of corporate clients such as Panama Casa Services
Managing short term rentals is a high intensity activity due to the high client turnover, which translates into a large number of bookings, rental contracts to be filled, check-in and check-out inspections, etc. A flawless level of property maintenance is expected by high-end clientele.
Managing short term rentals also involves paying attention to a wide array of services. In addition to the typical duties such as collecting rents and paying bills, short term rental managers provide regular cleaning of the premises, coordinating airport pick ups and other personalized services on behalf of high end clients.
The intense level of service that is characteristic of this industry has created a demand for specialized professional managers who usually charge a start up fee for setting up all public utilities, furnishing and decorating the apartments and dealing with the many small details, plus monthly fees based on a percentage of the rent receipts. The monthly fee varies between 20% and 25%, which is higher than is usually charged by long term property managers in Panama (from 7% to 10%). Short term rental rates are also higher providing investors in this market segment with higher overall returns. In addition, short term rental managers do not charge apartment owners a finders fee equivalent to one month’s rent each time a new tenant is booked, as is customary in Panama each time there is a new tenant.
Another advantage of the short term rental business is that collection problems are rare thanks to the corporate nature of most clients.
LOOKING AHEAD
Owning solid rental real estate has traditionally offered an excellent hedge against inflation as rents usually keep pace with inflation. The demand for all types of residential housing in Panama is currently at an all time high, quality short term rental apartments are commanding higher rents and providing better overall returns than traditional long term rental properties.
Panama’s broad-based, sustainable economic growth is generating a high demand for specialized services catering to business travelers. Short term corporate housing is here to stay and offers an interesting, new and profitable low risk investment opportunity for the individual investor, provided you stick to the basics: buy in a good location, outfit it right, and hire a qualified corporate housing professional to manage it for you.
Panama is an important regional business hub, where high-rise living can move the weary traveler out of the hustle and bustle of the city with just an elevator ride: if that ride leads to a short term rental apartment instead of an expensive hotel room, then the trip can spell value for both the traveler and the smart investor alike.
The authorJeff Duda of has over 25 years experience in real estate investment planning, property development and management both in the US and Panama. His company (Panama Casa) specializes in corporate housing management
