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How the Current Multifamily Market Outlook Should Impact Your Rental Strategies

By:
Megan Thomas
|
May 17, 2024

The multifamily housing market is currently navigating choppy waters, with heavy influence from the significant influx of new units and fluctuating demand – especially in the Sunbelt and areas of the Mountain West. This has led to a market scenario where oversupply and low occupancy rates challenge the norm, creating a critical need for adjustments in strategy for those impacted.

We’ll walk you through some of the recent national data provided by ALN and what steps you can take to help adjust to market conditions, but for more details on specific regions, be sure to watch this on-demand webinar, Multifamily Market Update: The Regional Context You Need to Navigate Through 2024

Current Market Data: Insights from ALN

The multifamily market has been witnessing levels of new supply that rival the boom periods of the '70s and '80s. This marks the third consecutive year that rental housing will deliver over 400,000 units. Despite an improvement in apartment demand—where Q1 of 2024 net absorption roughly tripled compared to Q1 of 2023—the rate remains lower than in any other recent year, indicating that recovery is still in its beginning stages.  

With national new units delivered outpacing net absorbed units by approximately 290,000 over the last four quarters, and an average occupancy rate just under 89% (the lowest since the Global Financial Crisis era), the market faces significant pressure. The average rent growth remains nearly stagnant at 0.3% in Q1, with lease concessions becoming increasingly common—20% of properties now offer an average discount of about 3.5 weeks off.

Data from ALN Apartment Data

The impact of the oversupply differs from region to region, especially those with significant population increases, but overall the data underscores a market that favors renters, presenting challenges in profitability and occupancy for owners. The “Survive until ‘25” has turned into “It’ll take grit to get to ‘26.”

Adjustments in Leasing Process

A fiercely competitive market doesn’t simply mean undercutting competitors on price to gain new leases. The true path to success is to sell value. As we emerge from the pandemic, where demand once outpaced supply, last year's standard of "good enough" simply won't suffice anymore.  

While technology plays a significant role in delivering consistent service and meeting customers on their terms, it isn't the single solution for all leasing, labor, or budget issues. Ultimately, the human touch is still non-negotiable. Technology + Humans = Exceptional Renter Experience.

You can find a lot of value in a thorough review of the entire leasing journey from prospect to net new lease, analyzing each digital and face-to-face interaction to identify areas for enhancement. Every touchpoint is an opportunity to exceed expectations and significantly outperform competing properties.

[STAT: 71% of renters still prefer in-person tours – Offering multiple ways for renters to tour is still important, however, there is still lots of opportunity for face-to-face interactions in the leasing process]

Adjustments in Renewal Strategies

We often hear that the path to renewal begins on move-in day, yet very few embody this customer-centric approach. Retention is not something you consider near the end of a lease - it is really a year-long conversation where every interaction with residents contributes to their decision to stay or leave. These interactions can include the move-in process, maintenance requests, community events and communications with on-site staff.

Even more crucial, these touchpoints allow you to enhance the perceived value of their home and community. Whether you implement personalized services, organize community-building activities, or invest in property upgrades, each initiative contributes to the overall perception of value, making residents more inclined to renew their leases and even accept potential rent increases.

According to satisfacts.com

To truly center the strategy on the renter, it's important that staff can view resident interactions as opportunities for connection and engagement instead of as interruptions or added tasks. This means empowering your staff with the necessary resources and support to deliver exceptional service, including ongoing training, centralized administrative processes to free up their time, or incentivizing staff to encourage more engagement and communication with renters. Regardless, the investment in employee empowerment is an investment in renewals.

Innovate with Long and Short-term Rental Strategies

Now might be the time to consider using longer leases to ride out the supply surge, as many did in the Global Financial Crisis. Extending the length of leases to 12-18 months could help stabilize your assets and improve occupancy.  

Map out how many leases you need and what the impact from those units would be on 2026 rent growth. If you have a large number of new units coming online in your immediate neighborhood, this approach may be especially helpful.  

Given occupancy rate expectations, many properties are likely to still have some vacant units even after applying all of these strategies, so consider getting creative and adding short-term leases to offset vacancy loss. If you do go this route, don’t be afraid to hire short-term rental managers who understand the ins and outs of short-term rentals and can help maximize the dollar on this strategy.

Navigating the current multifamily market requires a balanced approach that emphasizes both new leases and resident retention. There must be a focus on maintaining excellent renter experience and adapting to the shift in market demands. This paired with innovative long-term or short-term rental strategies can help your properties stay above water until demand levels out.

To see more about market conditions in your region, watch our recent market update webinar with ALN here.

If you’re interested in ResMan as a software provider for your daily operations, book a demo to see the product up close. 

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