Prove Your Worth: A Guide to Reducing Concessions
Thanks to millennials and retiring baby boomers, demand is outpacing supply for multifamily rentals. Younger households continue to delay marriage and the average age of first time parents, currently 26.3 years, continues to be later in life. These major life events are often triggered when people purchase homes. As millennials wait for marriage and children, apartments remain the better choice. In the next ten years, all Baby Boomers will reach retirement age, and many are looking to downsize as they leave the workforce.
By 2030, the apartment industry will need 4.6 million new units at all price points to meet demand. However, supply cannot just be met because the need is there. Construction costs, labor shortages, and other barriers to developing new properties will make it difficult for developers and property owners to fulfill demand. Even with this increasing need, occupancy rates are falling, which means the rental market has too many vacancies.
Competition Pressures Are Driving up Concessions
In addition to increased vacancy, the housing industry still has not recovered from the Great Recession. The housing market’s contribution to GDP has a long-term average of 4.8 percent. Traditionally after a recession, the single housing market jumps to 5.5+ percent. However, since the Great Recession, it has stayed at a low 3 percent.
As an owner or operator, you know that your business’ success does not solely depend on occupancy rates. Typically, high demand pushes for rapid-paced new development and an increase in rent prices. We are currently facing the opposite pressure: increased vacancy coupled with new development and fierce competition within the apartment industry.
Nationwide, multifamily owners and operators are responding to this competition by offering concessions to potential renters. A study done at the end of last year found that nearly 20 percent of existing apartments offered concessions of free rent to potential tenants. This is up from 4 percent in 2015, a significant and alarming leap by any standards. These lease-up concessions are currently concentrated in new properties, especially in 12 major urban cores where thousands of new apartments have been built each year for several years.
We encourage you not to overreact to competition pressure by offering rent reductions and concessions. Arm yourself with current market research and your revenue management data. If you have to offer more than six weeks of concessions to win new renters, there are imbalances in market rents.
Best Practices to Compete Proactively without Concessions
- Price your property accurately from day one. This will eliminate the need for concessions. Accurate pricing and appropriate market response will build momentum and confidence within your sales team. Doing your due diligence first will give them the best possible chance to secure leases without having to haggle, especially if concessions aren’t necessary.
- Utilize services instead of providing free rent. Boast about your amenities and in-house services as a value-add that increases the quality of life at your community. A few of the most attractive offers are house cleaning, dog walking, fitness center, messenger service, and business services. Make your community a one-stop shop for your residents and be clear about how your services save them time and money.
- Showcase the value of your community versus the price of rent. Your floor plans and entire property are more than just four walls and a patch of grass. Make sure potential residents get an accurate feel of your community from the moment they discover you online.
- Invest in your website, your first leasing consultant. An accurate and content-rich website invites prospective renters to envision themselves at your property, and engage with you throughout the customer experience. Be sure to optimize your content with data-driven SEO, keyword management, and audience insights.
- Utilize social media channels and online review sites to augment your community. Facebook and Instagram allow you to share photos and videos that connect with your community. Treat your online review sites as a revenue source that requires your attention and a well-managed strategy. Higher star ratings and a solid reputation can drive demand.
Reduce Concessions with G5 Digital Advertising
The best thing you can do to optimize your reach is to know your audience and how to target them where they spend time online, including what media they digest. A targeted digital advertising campaign can be used to drive prospects to specific persona-based landing pages which can highlight key differentials to your ideal resident. G5 is the leader in real estate marketing optimization. Our intelligent marketing cloud outperforms other real estate digital marketing solutions by 2.5x.
Get informed and stay connected with G5’s Multifamily State of the Industry Report for Q2 2018. In this comprehensive report, we’ve compiled the data you need to make informed decisions for your properties and turn marketing into your operational advantage. Download the report here.