At the beginning of the U.S. spread of COVID-19, our team tracked the impact that market uncertainty and changing health concerns had on our multifamily clients. At the beginning of the pandemic, we saw a slump in website traffic and searches for apartment communities nationwide. As time progressed the trends changed and amidst the crisis, we saw an upward trend among our client base.

As we sit here in July, a key leasing period for multifamily communities, the leasing environment we are seeing looks healthier than what many of us might have imagined. Communities will continue to make tough decisions in the months ahead but from where we are sitting right now, the demand for rental housing and the desire for apartment seekers to move this summer is still strong. We looked at several signals across a variety of industry sources, combined with our own internal data to give you a glimpse into today’s rental market.

1. Google Trends

A commonly cited source for national search traffic, Google Trends shows the relative popularity that a search term has in a given period of time. Over the past year, searches for both “apartments for rent” and “apartments near me” show the resurgence of apartment searching beginning in the month of April and continuing into July. Search popularity for “apartments for rent” was even higher in early July this year compared to early July 2019. We saw this same search trend play out across our own client portfolio when looking at organic search website sessions over time.

2. Apartment Website Traffic

Communities typically experience a rise in website traffic in the spring and summer. While communities experienced a decline in March that dropped levels down into the typical winter season level of traffic they rose to meet the typical website traffic levels we are used to seeing in Spring and Summer. Since most apartment searching is happening online, a community’s website plays a large role in its ability to attract apartment seekers. Our own client base shows a 73% year over year rise in total website sessions and a 38% increase in website goal completions* (June 2019 vs. June 2020). This indicated that apartment seekers are spending more time on apartment sites and are more willing to engage with communities there.

*Goal changes are also impacted by the adoption of our website conversion software, better attribution, and overall marketing performance improvements that took place from June 2019 to June 2020.

3. Communication (Chat, Phone & Email)

Live Chat conversations, phone calls, and emails to leasing teams are all signs that renters are actively inquiring about properties and moving beyond the browsing stage. We saw a rise in overall communication with leasing teams across our multifamily client base from March to June.

The following call and email data represent click to call data and click to email data from a sample of over 600 apartment websites.

Live chat conversations from our client’s apartment websites increased a total of 36% March-June compared to the four months prior. 

4. Scheduled Tours

At the beginning of the pandemic, communities worried about their ability to lease apartments in a situation where prospective residents couldn’t easily tour the building. Communities switched from an in-person tour model to a virtual tour model overnight. Many apartment seekers were ok with this shift and we saw communities scheduling tours again at the end of March. We have a few hundred communities who used our tour scheduling platform to promote and schedule virtual tours throughout the pandemic. The average number of tours each community scheduled increased month over month throughout the pandemic. The average community self-scheduled 24 tours last month, twice the average of March.

5. NMHC Rent Payment Tracker

One of the biggest questions the industry had at the start of the pandemic was whether renters would be able to make rent payments. The National Multifamily Housing Council collaborated with several apartment industry data sources to assess the percentage of renters to pay their monthly rent. Throughout the pandemic, the rate of rent payments remained higher than predicted. Rent payment rates by the end of April, May, and June remained in the ninety percent range and only slightly deviated from last year.

When comparing weekly rent payment rates, July payments were only down 2 percentage points from last year by July 20th.

*It’s important to note that not all of the rental properties in the U.S. are represented in this tracker. Only professionally managed multifamily communities with 5+ units are tracked. While this represents a large portion of the rental market it underrepresents 1-2 unit rentals which have fared differently in the recession than the larger multifamily communities we’ve worked with.

6. Survey Results

In late March, Rentcafe interviewed apartment seekers about their willingness to move during the pandemic. In this survey of over 6,000 renters, they found that a majority (60%) were not planning on postponing their move. 49% said that their preferences had not changed compared to what they were looking for before.

Zumper conducted a more recent survey of over 500 renters at the end of April to see how the apartment outlook had evolved throughout the pandemic. When asked how COVID-19 has changed their apartment search criteria, the most popular response was “looked for more virtual tours” (34%). Surprisingly when asked about the biggest challenges renters are facing in their apartment search the most popular response at 55% was not receiving a response back from a community.

The current state of the apartment search process is not without its trials. 52% of apartment seekers say they prefer in-person tours over virtual tours despite the rising popularity of virtual tours. While most apartment seekers still plan to move and nearly half have not changed what they are looking for in an apartment, 28% of renters are looking for a cheaper apartment (RentCafe) and 19% are expanding their search radius (Zumper). However, a small portion of renters (5%) are actually increasing their budget and 9% are narrowing their search radius (Zumper).

Making Sense of the Signals

COVID-19 hasn’t changed the desire for most apartment seekers to make a move. The recent surge in apartment searching online, the increase in engagement with leasing teams that occurred from March to June, and the rise in self-scheduled tours indicates that there is still an active renter base looking to move despite the changing environment.

Among current residents, rent payments for the full month of June indicated that most apartment seekers were able to pay rent and rent payment rates remained very similar to payments before the pandemic. 

So what has changed? The apartment search process, which has become even more virtual than before. Google searches, website traffic, self-scheduled tours, and live chat conversations have all increased in popularity year over year. While apartment search behavior has historically always peaked in the Spring and Summer, time will tell if the current rise in apartment searching will carry over into fall. 

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The post 6 Signals of a Strong Summer Rental Market appeared first on Conversion Logix.

Supply levels are surging in the rental housing industry. Will rental demand keep pace with sky-high supply? What can your community do to stay competitive in this evolving market? We explore the answers to these questions and more in our latest industry analysis.

February 2019 marked a historic month in Multi-Family Housing development. The industry produced 473,000 housing completions of 5 units or more. These figures are the highest they’ve been in three decades.

February was not just a blip on the radar either. MFH construction has had consistent growth since late 2010. With the exception of one month, each month over the last 4 years has seen housing completions above the median of the last 31 years. Of particular interest are buildings that have at least 20 units or more.

Unprecedented levels of growth have occurred over the last half-decade among buildings this size. Developers are vying for larger communities, and many cities have seen an influx of luxury skyscrapers. There are a few reasons developers are opting for this strategy.

Making Room for Affordable Housing

Often times, cities will have strict zoning policies. However, a compromise some cities will make is to require that the developers reserve some units for affordable housing. For example, New York City passed a law called 80/20 housing. If a developer dedicates 20 percent of units to affordable housing they can receive “lucrative tax abatements, permission to construct larger buildings and bond financing” says the New York Times. The presence of affordable housing paves the way for our next reason these skyscrapers are being built: Fannie Mae and Freddie Mac.

Financing Opens New Doors

The two GSEs have moved beyond single-family mortgages and into the commercial realm.  At the end of 2017, Fannie and Freddie had “a financial interest in almost $500bn of commercial mortgages, equivalent to 38 percent of the total outstanding across the US” according to the Financial Times. This percentage has more than doubled since 2000. They make a difference in supply because “They’re typically willing to supply more leverage than typical commercial banks,” says Chris Gregg, national head of real estate at Bank Leumi USA.

Developers Have Been Encouraged by Recent Market Conditions

From 1990 to 2019 total market supply rose from 15 million units to 21 million units, a 40% increase. During the same time period, the U.S. population increased by only 30%. So with this increase, we should be seeing a decrease in pricing. Right?

Prices Aren’t Falling in Line With Supply

Well, of the top 100 markets in the Nation only six saw a decrease in YoY rental pricing at the end of Q1 2019, according to Zillow. As you can see in the following graph, occupancy rates have hardly budged upwards. The market is absorbing these new units without blinking. Why has demand remained this strong for this long?

The Demographics Driving Demand

A large part of this can be explained by changing demographics. Simply put, many more households are choosing to rent their home. Many too, have been forced out of the housing market due to soaring home prices. Younger Gen Xers and older Millennials are choosing to delay marriage and raising a family and instead stay in metropolitan areas.

“Rental rates have also risen notably among those ages 35 to 44. In 2016, about four-in-ten (41%) households headed by someone in this age range were renting, up from 31% in 2006,” according to Pew Research. Other age groups are choosing to rent more, as well. Baby boomers are opting to downsize more often due to higher divorce rates and delayed retirements. But it is the 35 to 44-year-olds that have had the most significant change this last decade.

How Communities Are Retaining Young Households

While this has certainly been the trend of the last decade there are many demographers and economists who believe the influx of millennials into cities and apartments is starting to wane. An article in The New York Times entitled “Peak Millennial? Cities Can’t Assume a Continued Boost From the Young”, Dowell Myers, a professor of demography, suggests that growth for urban living is likely to stall in the coming years.

Many communities have embraced this demographic of young professionals by offering amenities such as boutique coffee, power gyms, and “think spaces” with wi-fi and meeting areas. However, some communities are looking ahead, as Myers is, to address the needs of the aging millennial. Communities such as Jackson Park, a luxury community in Long Island, are offering family-friendly amenities and resources. “In a national survey of city-dwelling families, Tishman Speyer and Common found the cost of childcare and sense of community were top concerns,” writes Gail Kalinoski from Multi-Housing News. To address these concerns, Jackson Park is offering membership to an app that allows families to “arrange on-demand childcare services, network with other building members and have access to family-oriented programs and services like swimming lessons, holiday parties, and cooking classes.”

Addressing the needs and desires of the tenants is nothing new in the apartment industry. “For decades the term amenity creep has been current,” writes PWC in their annual “Emerging Trends in Real Estate” report. Amenities like herb gardens, rooftop bars, and even fire caves(!) help to create a sense of community. Tenants respond to these efforts with predictable behavior: they renew their lease. Resident retention matched in an all-time high in 2018, according to RealPage Data.

While it may be difficult or even impossible for every community to install a fire cave or a rooftop garden it is not impossible to create a positive social fabric. Whether a community chooses to offer an app like Kin to bring families together, or just have social events, it can help boost retention rates.

Marketing in Today’s Rental Market

Despite record renewals, just over half of renters re-signed their lease. Turnover is a natural part of this business and attracting new prospects will always be integral.

Marketing a community requires an understanding of the prospect’s preferences while also understanding its own identity. When a brand can articulate its identity honestly, it builds trust with the consumer.

Examine this top performing Facebook ad, “[Community Name] offers brand new apartments with the urban sophistication of downtown Austin and the beauty of Texas Hill Country. Lease Now!” Can you imagine how that would entice a demographic on the verge of starting a life in the suburbs but not quite ready to leave their amenities behind? A photo of the lush hills and the sleek design of the community was attached to the ad as evidence to their claim.

A community forms its identity when it can zero in on the core benefits it offers renters and how those may be unique from other communities in the area.

Conclusion

Historically high supply increases emerged from greater access to financial capital, favorable market conditions, and affordable housing incentives. February’s historic supply increase may not be the last. Housing starts of 5 units or more have been historically elevated over the last three years and will be set to open soon. Supply, given reasonable construction progress, is predictable. Demand is more difficult. Preferences change. Retention rates are at all times because the preferences have been met. As Jackson Park shows, the needs of the aging Millennial can be anticipated even as they enter a different stage of their lives.

The post The Driving Forces Behind Today’s Rental Market appeared first on Conversion Logix.