Apartment Industry Market Dynamics
Inventory levels, population increase, and pull forces from economic growth give cities like Boston, New York, and San Francisco a notorious reputation for having the highest apartment rental rates in the country. Conversely, the high cost of living in these cities has also pushed renters away, sacrificing shorter commutes as a trade-off for more affordable housing in the suburban outskirts and metro areas. Migration can create big opportunities for Commercial Real Estate developers and investors if they spot the moving patterns, and identify locations early on. One recent trend has been millennials moving away from congested metropolitan hubs to smaller cities on the rise, where there is more space and lower rents. This shift has given property management firms in bustling urban markets, once accustomed to managing waiting lists, good reason to focus on marketing—to maintain occupancy. Today, there’s another factor making a major impact on occupancy rates and market rents in major cities across the country, and it’s testing apartment building owners’ and managers’ ability to perform.
COVID-19 Impacting Occupancy
Spring and summer have traditionally marked the leasing season in the apartment industry since driving U-Haul trucks filled with furniture and boxes is a little easier when it’s nice out. Having more mobility in a warmer climate, prospective renters usually tour apartment communities, college students typically move near campus, and families relocate to new school districts before the first day of school.
Spring and Summer seasons were different in 2020.
The spread of COVID-19 infections led federal, state and local government agencies to give health and safety guidance to shelter in place, impairing mobility. Universities moved fall semester courses online, and social distancing measures created new challenges for leasing operations to show apartments—a challenge faced across the nation. In big cities hit hard by the pandemic, many residents left these hotspots for fear of contracting the virus. Companies adopted work-from-home policies, creating a new environment for a remote workforce that made employment relocation unnecessary. Additionally, with unemployment rates on the rise and an uncertain outlook on the economy, the pool of renters looking for new apartments became smaller. In cities where market rents peaked just a few months before the pandemic, rents dropped by up to 40%.
Landlords Rethink Their Leasing Strategies
Real estate management companies are grappling with declining occupancy in major cities across the nation. As the country begins to reopen, and the economy starts to show signs of recovery, landlords are stimulating leasing activity by offering move-in specials to new renters. In markets where incentivizing renters to move in was once unimaginable, landlords are now offering rent concessions for up to 3 months to qualified applicants. Despite these move-in specials, market rents continue to drop and leasing activity remains stagnant in some of the most expensive areas in the country.
Online marketing has become essential for real estate companies to attract prospective renters. Apartment hunters used to rely on local newspaper listings, “For Rent” banners on buildings they drove past, and a real estate agent’s local knowledge to find their next home. Today, finding an available apartment for rent is at the fingertips of renters on their mobile devices. Competing for the renter’s attention, Internet Listing Services (ILS) have emerged over the years as a primary source of information for renters, providing an endless selection of apartment communities to choose from. Not surprisingly, searching for an apartment on the various ILSs—clicking through pages upon pages of options—can take up a considerable amount of a renter’s time to find a new place to live. As more companies turn to internet listing services to fight for the small pool of prospective renters, ILSs are getting saturated.
Measuring Marketing Performance from Lead to Lease
It shouldn’t be any surprise that Internet Listing Services have capitalized on the industry’s increased reliance on them by offering better placement as a means to attract more attention to properties—with a larger budget. Not all management companies can afford to stay at the top of the page or pay additional fees for placement, like having a spotlight property listing. ILSs know how to position these features since more views should give property management firms an advantage over the competition, right? Properties are getting more views by increasing their spending with the preferred placement model, but are they really getting more qualified leads that can be converted into new residents?
Renters choose their next home to fit their lifestyle. When prospective tenants have multiple options to choose from, real estate management companies need to capture a potential renter’s attention by doing more than just making sure their properties can be seen amongst hundreds of other listings. Paying for more views doesn’t always guarantee more qualified leads that will be turned into new leases. Marketing performance metrics can give landlords valuable insight into which platforms are really working and really worth the money being spent. Throwing money at marketing without getting the right results is throwing money away. Marketing available listings online needs a multifaceted approach, meaning optimizing marketing spend and prospect pipeline management to increase your lead to lease ratio.
If you have a property that has increased its marketing efforts and you are still struggling to close the gap on occupancy goals, you may be faced with this new reality.
Contact us to close the vacancy gap and unlock SKYLINE’s marketing plan for your business. It’s time to maximize your marketing performance. Download the "Marketing & Leasing Suite" brochure to learn more about SKYLINE’s offering to help increase occupancy.
Written by Randal Eich