Demand For Apartments Is Dropping – Here’s How Multifamily Operators Should Respond

Many businesses dealt with unprecedented challenges brought on by the COVID-19 pandemic. Yet amid that uncertainty was record-breaking rental growth and demand for apartment communities.

Over the past couple of years, being in the multifamily industry has been relatively easy and money-making. But recent reports indicate that the soaring rental market is, predictably, returning to pre-pandemic levels. Nationwide, demand for apartments is declining due to concerns about inflation, massive layoffs, and rising interest rates.

Apartment demand and occupancy change constantly, but this latest movement is quite concerning for many operators. To maintain stable performance in their communities, apartment operators should take these three actions in response to declining demand:

1. Review rental rates.

Apartment operators are struggling to lower their skyrocketing rental rates now that their demand has declined. The truth is, many were too slow to act. That is evident by the many operators in the unenviable position of offering steep rent concessions to regain demand for their apartments. That will make their monthly rent revenue look starkly different than what it has been of late.

The first and likely most important response is to review rental rates and ensure the rent price for each unit and floorplan is appropriate, given current market conditions. A multifamily-specific revenue management solution is undoubtedly helpful in this situation. For those manually setting rents, paying attention to a unit’s vacancy duration and overall leasing velocity would be best. Suppose units sit vacant for extended periods, or it’s taking longer to move prospective residents through the leasing process due to price objections. Those situations warrant a rent adjustment.

2. Review leasing and management practices.

A strong leasing and management staff can give apartment communities a competitive advantage when market conditions change.

It’s essential to take the time to review leasing agent performance and ensure they have the training and tools necessary to support prospective residents. Two areas of evaluation worth eyeing are how they handle phone conversations and their showing-to-lease ratio.

It would be best to implement phone (and potentially) email tracking software to get the best assessment of how leasing agents handle these critical conversations with prospects. This software tracks average phone call duration and the percentage of phone calls answered during business hours. Some phone tracking software also records conversations for later review. Not only is that valuable for performance assessment, but it also helps the marketing staff pinpoint each lead’s original marketing source. The team at RentVision has an excellent guide about phone call tracking for apartment communities.

This data paints a solid picture of phone call performance. Typically, long phone conversations are indicative of future leasing success. And obviously, leasing agents must be available and answer the phone at a high rate.

Next, it’s critical for leasing agents to be adept at handling in-person showings, which the showing-to-lease metric can portray. The apparent objective is for leasing agents to close at a substantial rate. But if the count of showings begins to outnumber new leases, there’s an issue. Not all blame goes to leasing agents in this instance. Bad marketing could result in more showings with less qualified prospects. Or, not having any vacant (or staged) units available for in-person showings can also be a factor. But a lower showing-to-lease ratio can reveal if leasing agents need to develop better practices for in-person tours.

Assessment should also take place at the managerial level, specifically concerning the upkeep and appearance of the apartments themselves. Are the property’s units, amenities, and buildings well-maintained, clean, and appealing? Do they match in reality with how they’re featured in media online? A community’s management team is responsible for those answers. Managers should walk the property and assess these areas, especially now that demand has dropped and they have a higher impact on overall leasing success.

3. Cut unnecessary marketing costs.

Reducing vacancies is one cost-saving measure. The next step is to stop overpaying for marketing sources that hardly ever produce what matters most to apartment operators: leases.

Of course, funding marketing sources is critical to generate demand when organic demand is down. That said, many apartment marketers utilize static budgets or static strategies, meaning they will pay the same amount each month regardless of occupancy.

It would be best to filter through each marketing channel and determine effectiveness by counting each channel’s lead-to-lease conversion rate. Channels that should take priority are the ones that consistently produce the types of leads who ultimately sign leases. Marketing channels that generate many leads but few leases are expensive, so cutting them from your budget is appropriate in most circumstances.

Then when it’s necessary to generate more demand through marketing, it’ll take less of an investment to accrue qualified leads who are more ready to sign a lease.

Conclusion

In light of the multifamily industry market’s latest downturn, it would be best for apartment operators to take the time and review rent prices, leasing agent performance, and management practices, as well as cut unnecessary marketing costs. Those actions will equip operators to solidify their communities and help their performance remain stable through every change in demand.