Prop Tech: The Secret to the Multifamily Industry's Resilience Against Recession
This article is contributed by Sylvia Crawford, Senior Director, Marketing Strategy and Planning at Arize
(Editor’s Note: “Proptech” – short for property technology - is the broad range of products, services, and systems that use technology to enhance or streamline the ways people interact with a residential or commercial property. The goal of Proptech is to rethink how people live and work in buildings, and it leverages technology to improve those processes.)
The benchmark interest rate continues to climb and is now the highest it's been in 15 years. And with inflation settling near 7%, give or take, all signs point toward a looming recession. Many industries are cutting costs to prepare for hard times and anticipated profit losses.
The multifamily industry has persisted through five recessions in the last four decades. Most recently, it survived a global pandemic, something that has crippled other industries we thought were recession-proof. But why is multifamily sector so resilient? How are owners and operators able to tap into new streams of revenue to secure their prospects during a recession? Let’s look at how multifamily owners and operators withstand these severe economic downturns.
Recession Propels Multifamily into the Land of Prop Tech
What does the future look like for a multifamily property industry with a recession on the horizon? For multifamily property owners and operators, the future isn’t quite so bleak. Sure, there’s going to be some cost-cutting and belt-tightening, but a recession is also an opportunity to secure long-term growth and sustainability.
Yes, recessions do affect rental income. Even today, after experiencing record-breaking growth for almost two years, rent increases have begun to flatten. Because of this, owners need to find ways to recoup their lost NOI. Innovating and modernizing by investing in smart property technology is one of the most reliable methods to do so, as evidenced by the uptick in smart amenity investments during the pandemic.
While once considered a ‘nice-to-have,’ smart tech is now the cost of doing business, especially when the economy begins to contract. 83% of multifamily builders prioritize smart home technology that integrates with their property management software. 65% of those same builders consider smart tech a differentiator and value-add. When it comes to residents, 82% are interested in at least one smart device and would pay $38 per month on average to add it to their homes. Smart tech also elevates retention. Recent studies done by various companies nationwide have concluded that 56% of residents, on average, express a desire to renew because of the smart tech in their units.
Proptech Delivers Control During Volatility
Inflation was one of the main driving forces behind the market’s volatility this past year, in large part due to a series of events from the past few years. In 2020, the world went through a pandemic that brought the economy and supply chains to a screeching halt. As a result, the Fed lowered interest rates to record low percentages as a response to COVID-19 in efforts to increase spending. In 2021, the government provided much-needed stimulus payments, which allowed renters to afford rents that had climbed by 13.5%. Yet while spending was booming, supply chains continued to struggle to meet demand, causing an increase in the prices of goods and services.
Despite the gloomy economic outlook, multifamily properties have remained a favorite asset class of investors. And the industry’s performance during the last five recessions serves to alleviate the concerns of both owners and investors, at least in the short term. Yes, rents will stagnate during a recession. However, the long-term impact smart tech has on retention, NOI, and operational efficiencies will far outweigh the adverse effects owners feel from short-term rent drops. Multifamily owners can ride out periods of volatility and uncertainty by securing tighter control over their portfolio’s performance with smart technology. Smart tech creates operational efficiencies, lowers overhead costs, and leads to higher returns on investment (ROI) and net operating income (NOI). Higher retention, lower turnover, enhanced operational performance, reduced staff overages, minimal payroll… these NOI-generating outcomes all result from adding smart tech-enabled automation to a given property.
Take staffing issues, for example. Over 62% of property managers consider optimizing their operations to gain efficiencies one of the top three professional challenges they face, according to survey data from the National Apartment Association’s Apartmentalize 2022 conference. Additionally, 74% of owners said that human resources and staffing are the most difficult areas of their business to optimize.
Smart apartment technology streamlines employees’ day-to-day responsibilities. When property staff leverage smart tech to oversee repair issues, for example, they decrease the number of maintenance tickets they handle by 66%, saving their staff time and lowering what they have to pay for maintenance personnel.
Recession Equals Opportunity for Owners and Operators
Eric Bolton Jr., Chairman and Chief Executive Officer of Mid-America Apartment Communities, has stated that thanks to smart technologies, he will be able to reduce positions in his leasing department over the course of 2022 and is on track to optimize even further in 2023. As a result, he is also on track to expand his assets’ NOI by $28 million.
There are two upcoming trends that multifamily owners and operators can look to take advantage of. The first is the retrofitting of legacy buildings with smart technology. As the cost of borrowing money continues to rise with every Federal Reserve Bank rate increase, owners will be looking for cost-effective ways to upgrade their properties and reduce inefficiencies via automation and increase their retention and acquisition rates -- all while enhancing their portfolio assets. Thanks to smart tech, the industry is at the beginning of an increase in modernization. Implementing smart tech offers a nonintrusive way to upgrade a building without having to take down any drywall or rip out any studs. This provides owners with an affordable turnkey solution to their day-to-day challenges.
Another major bonus to owners is the emerging trend of Hardware-as-a-Service (HaaS) from companies like Arize. Owners can capitalize on predictable and affordable overhead with a guarantee to never have obsolete technology. Hardware-as-a-Service follows a similar process as purchasing cellphones today, where cell phone owners don’t own the products outright, instead paying a monthly fee that allows them to upgrade tech to the latest model when it becomes available. A HaaS subscription service enables owners to control the cost of smart home technology, and these savings can be further maximized when strategically partnering with providers that help owners at every step of the process. Additionally, HaaS subscriptions can allow owners to collect rebates for energy efficiency and increase overall annual return on investment (ROI) and annual net operating income (NOI). This trend lets owners invest in solutions that meet their needs today and year after year.
Practical Beats Pretty
While some multifamily residents might think a dog washing station or yoga studio is cool and attractive, data shows that modern renters are far more enticed by practicality. We live in an experiential economy which is why smart technology “checks the boxes” for today’s renters. Owners that have implemented smart property technology boast about the ease of managing their assets along with the increase in resident retention and acquisition rates across their portfolio. No matter the market landscape, smart technology automation will continue to provide owners with controlled costs and greater bottom-line revenue.
Arize is an all-inclusive platform that provides convenient, connected, and secure living for properties of all kinds. From traditional apartment upgrades to new upscale luxury apartment builds, we help your community thrive effortlessly with cutting-edge technology. For more information, go to www.arizehub.com.