Leasing Whiplash! Techniques for a Strengthening Market
Amid rising rents and tightening occupancy, operators see a hybrid future
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On a national level at least, the numbers say the apartment market took off over the summer. Just look at the July figures from RealPage: During the month, rents grew 8.3% year-over-year across the country—the most significant jump since the booming 2000-2001 era. At the same time, occupancy tightened to 96.9%—also the highest seen since the 2000-2001 era.
While performance in individual markets and product types varies, national fundamentals are predicted to remain robust in 2022 and even 2023. RealPage projects 15 markets to post rent growth of more than 10% during the next two years, and many other markets should see rent increases in the high single digits.
On the ground, many apartment operators are experiencing these increases across their portfolios. “You’re hearing a lot of noise about market rent increases and how much they’re going up,” says Cindy Clare, Chief Operating Officer for Bell Partners. “Keep in mind that some of that is a recovery from the drops from last year. But some of it is absolutely true market growth.” Regardless of whether the rental market is just recovering from rent decreases in 2020 and early 2021, today’s leasing agents are now dealing with a market that has flipped from just 16 to 18 months ago. They’ve gone from trying to keep heads in beds to pushing rents while still working around eviction issues (which could be inflating occupancies). Fortunately, many of the technologies deployed during the pandemic should help them continue to lease apartments more effectively regardless of the economic climate.
Leasing Comfort
Clare isn’t alone. Other firms have seen robust rent growth across their portfolios. “Rent growth has been robust across all markets and projects,” says Greg West, Chief Executive Officer of ZOM Living. “The velocity of growth has been surprising, as has been the absorption of new apartment deliveries. The pandemic did stall absorption for some time, but it also delayed new starts, which has created an environment of supply shortage in most markets.”
While concessions became commonplace during the pandemic, they’ve now burned off. “For the most part, the only deals offering concessions are lease-ups on merchant builds that want to accelerate the pace to get to an occupancy they can market for sale,” West says. Even with 2020’s rent increase, Clare says some leasing agents remain nervous about asking for increases. “We haven’t seen these types of increases in many years,” she says. “Coming off last year, it is a little bit of a whiplash. So, it makes our teams nervous, but they also recognize their occupancies are high and people are coming in and paying the rent because we’re at market.”
But Clare says her leasing agents are getting more comfortable that these rent increases are market driven. “Our occupancies are high, so people are feeling much more comfortable about their leasing and getting residents in the door,” Clare says.
Wood Partners has seen rents jump across its entire portfolio this summer, including some surprising places. But some of that is beginning to moderate. “We have seen rents increase even in areas we expected to see a slower recovery, such as Portland, San Francisco, Oakland and Washington, D.C.,” says Steve Hallsey, Executive Vice President of Operations for Wood Residential Services. “However, rents are starting to show a slower amount of increase in the last several weeks, as the seasonal decrease in prospects begins.”
Inflated Occupancy?
Beyond the strong occupancies numbers is an unknown: The effect of eviction moratoriums. “How inflated is occupancy because of people who haven’t paid their rent?” says Clare.
When Chris Riley, a Co-Founder and Managing Partner of Blaze Capital Partners, looks across his A and B portfolio, he sees occupancies generally in the 90s. The market took off in March and pushed forward throughout the summer. “Universally across the board, we’ve seen a lot of demand and out-sized rent growth for sure,” he says. “Much of that has just been predicated on the high occupancies.” But like Clare, Riley notes that there is a catch. “Some of that occupancy in the B and C space is somewhat hyper-inflated and is a byproduct of the eviction moratorium,” he says.
Clare agrees that the number of people in units but not paying rent varies by location and asset level. “Some markets were more impacted than others,” she says. “The markets where there’s a lot of service industry jobs felt it more than markets where people were able to work from home.” Occupancy hasn’t surged everywhere. In some places, particularly pricy urban areas, occupancy also suffered during the pandemic. And it still hasn’t totally recovered, though it also picked up during the summer. “The increase in remote work options boosted an out-migration as renters saw the opportunity to move closer to family, in the suburbs or any place that offered a change of scenery,” says Tina West, Senior Managing Director with Cushman & Wakefield. In the future, Tina West thinks hybrid working will benefit both urban and suburban markets. “Homeowners who capitalize on elevated home values and have no place to go after they sell will push a higher demand on rentals, which will continue to lower vacancies, eliminate concessions and bump rents,” she says.
Even with these increases, other issues are cutting into profitability. “Rents have gone up in my region, but we are just trying to keep up with the steep increases in inflation,” says Dan Flamini, Area Vice President for Morgan Properties. “Payroll, maintenance supplies, taxes, insurance, and repair services are all increasing steadily.”
Leasing Tech is Here to Stay
During the height of the COVID lockdowns, face-to-face leasing was nearly impossible. For the companies that had at least tested virtual tours before the pandemic, the transition was more manageable, according to Tina West. “The benefits of a digital landscape gave prospects access to leasing 24/7 and transparency in pricing and inventory,” she says. “The use of chatbots and interactive functionalities also helped us identify great prospects and guide their buying decisions.”
As it did for many other companies, the pandemic expedited the adoption of technology into leasing for Bell. While companies were already testing artificial intelligence tools and virtual leasing, the pandemic expedited their adoption. “We rolled it out across the board because there was a pandemic going on,” Clare says. “But what we’ve seen is that we are now better able to meet the customer where they want to be met. Some people love the idea of doing a virtual tour and doing everything with an AI tool. And that’s great. We have that for them.”
In many cases, leasing teams led the way in this adoption of new technology, according to Flamini. “Many of our property managers and leasing agents took the lead and started showing our individual apartments and communities through virtual leasing and self-guided tours,” Flamini says. For ZOM, the pandemic has changed leasing forever. “We never imagined how well people would adapt to virtual leasing, which some customers prefer,” Greg West says.
A Hybrid Future
But that doesn’t mean technology is totally taking over. “You hear people saying that we’re going to be going to all virtual,” Clare says. “I don’t believe that. I do believe that we will continue to have people that want to come in and see their apartments and interact with leasing agents in person.” Wood has noticed that in-person tours have increased back to pre-pandemic levels. “However, virtual and self-guided tours will continue to be a part of our leasing strategy,” Hallsey says. That’s why leasing agents won’t be going away anytime soon. The pandemic has helped the industry figure out how to serve its customers, regardless of their desire. “The leasing consultants are there for them,” Clare says. “We also have people who want to do self-guided tours. We can accommodate that. So, I think [the pandemic] has expanded our ability to meet our customer’s needs.”
At ZOM, the strategy is similar. If the customer wants to connect virtually, most managers will maintain the virtual option for leasing. “Connecting with our customers in the virtual world was, of course, important before the pandemic but now [it is] more than ever,” Greg West says. “It is clear some people expect some, if not all, of their shopping experience to be online. It is our mandate to constantly find ways to more efficiently find and engage those customers.”
As technology has changed, so have some of the skills that leasing agents need. Flamini calls good computer and social media skills a “must-have” skill set. “Many of today’s leasing transactions are fully automated online without a face-to-face meeting until the day of move-in,” he says. “With that said, there are still renters who like to see the apartment and will always kick the tires before they make a commitment. This is why soft skills like being a good listener, friendly, informative and genuine are equally important in today’s marketplace and post-pandemic.”
Those same soft skills have been essential for leasing agents for decades. And even though the pandemic and leasing technology have upended the marketplace, they aren’t going away anytime.
Search Engine Optimization (SEO) Gains More Prominence
The apartment industry’s focus on search optimization and reputation management existed well before the pandemic. But COVID-19 has magnified its importance. During the pandemic, Morgan Properties improved its website, adding chatbots to all community sites, allowing prospective residents to search directly for apartments by bedroom and price. Social media is also playing a more significant role in marketing. “We know how important it is to improve our online ratings and recognize their impact on driving traffic to our communities,” says Dan Flamini, Area Vice President for Morgan Properties.
While the industry made tremendous strides with AI and virtual leasing during the past 18 months, there is still more ground to cover. “It is very important to personalize our online experiences by marrying the high-tech and high-touch dynamic,” says Tina West, Senior Managing Director for Cushman & Wakefield. “We must also prioritize the creation of a memorable touchpoint, top-of-mind awareness for prospects and residents, engagement without face-to-face interaction, and a means for becoming the first and consistently the last interaction a customer has with our brand and our properties.”
Greg West, CEO of ZOM Living says that it is important to introduce a property both virtually and in person. “Our staff has to meet this demand through social media and community engagement,” he says. “One’s ranking on a search engine is certainly relevant, but increasingly relevant is reaching your customer in a more personal way.”
Revenue Management Strategies
Virtual leasing and AI weren’t the only tools that leasing agents have relied on during the pandemic. While there have been some dramatic shifts in the market over the past 18 months, Cindy Clare, Chief Operating Officer for Bell Partners, says that one established tool—revenue management—has been up to the task. “It still has to be managed and you still have to have conversations, but I do think the tools are working,” Clare says. “But I also think part of that is the parameters that you, as the operator, put in.”
Early in the cycle, Bell pulled back on its revenue management inputs and put in higher occupancies. “We decided that we needed higher occupancy versus higher rent, just because of where we were in the pandemic,” Clare says. “Then, as we started to come out of the pandemic, we adjusted those parameters.” Clare says that the revenue management levers pulled help determine outcomes. “Are you looking for maximizing revenue or are you looking to maximize occupancy?” she says. “Are you looking to balance the two? All of those things make a difference in how your revenue management system operates and how it acts in cycles like this.”
Les Shaver is a freelance writer for the National Apartment Association. This article is being reprinted with permission from the National Apartment Association and was first published by Units Magazine.