Main Takeaway: Debt costs are rising, and cap rates are increasing. Multifamily owners and investors should revisit their resident retention strategies by considering: enhancing communications, amenities offered, and social connections amongst residents.
Story: Completions are increasing, rent growth is slowing, and rising debt costs are putting downward pressure on NOIs and, ultimately, valuations. Further, reducing expenses will become more challenging as inflation remains stubbornly high.
The good news is multifamily landlords are paying more attention to resident retention:
Yardi Matrix recently revised its 2023 rent growth outlook to 3.5% from 3.7%. Although still positive, this downward pressure on revenues will mean we must look elsewhere to boost our bottom lines. Resident churn can be expensive, costing between $1,000 to $5,000 per unit on turnover. A recent Zego report pegged the cost of resident turnover at $3,976.
According to RealPage, resident retention has recently come off its 2022 peak. “Of renters with expiring leases, 54.8% signed renewals, and with a typical renewal rent increase of 11%, according to data from RealPage Market Analytics. That’s the second-highest August on record and it’s well above the pre-COVID average for August of 50%, but it’s down considerably from last year, when retention skyrocketed up to 58.1%.”
Meanwhile, multifamily construction is also on the rise.
More supply and lower rent growth mean renters will have more market optionality, increasing movement across rental assets and markets. Here are a few strategies to keep your current customers happier and in place.
Create Connections for Better Resident Retention
Maria Banks of AMLI Residential noted succinctly in an interview that “[t]he past couple of years [turnover has] gotten a little higher during the pandemic…But certainly resident retention is a part of our strategy. We looked at resident events and created resident groups in our portal to try to make people feel at home. Obviously, customer service is a significant focus for us as well.” Exceptional customer service and communication is an obvious win, with proven strategies such as:
- Asking for feedback often
- Be accessible through technology and in-person
- Proactively provide resources and tools to tenants
- Host events
- Create shared workspaces
Resident Retention Goals and Metrics
According to data, 24% of multifamily operators do not have formal retention goals within the company. This is a mistake, metrics and KPIs need to be measured and reported just like you would with rent and expenses.
This can be problematic when you also consider that 87% of landlords say retention and renewal of current clients is more of a focus in 2023. A recent VTS report concluded that: “landlords don’t have insights into tenant attrition or know what tenants are looking for from their spaces.”
Technology Helps with Multifamily Resident Retention
Innovative and smart property technology is not only an amenity increasingly demanded by residents, but it can also help reduce operating expenses.
For instance, according to Saurabh Bajaj, CEO of Swiftlane: “71% of tenants want controlled property and amenity access, with 20% citing it as a necessity. With smart home technology becoming increasingly popular, multifamily buildings are beginning to execute smart building technology strategies to give their tenants that same experience. Specifically, innovations in controlled access are guiding smart access initiatives across portfolios as demand from tenants increases.”
There are a number of proptech verticals owners and operators should be exploring, and developing a formal strategic plan for how you discover, test, and deploy new technology in your business. If multifamily operators can use technology to reduce costs and enhance resident experience retention, the blow of slowed rent growth and higher debt and inflation could be softened.
Expert Take on Multifamily Resident Retention
“Tech for tech’s sake does not matter if it doesn’t make the resident experience better – and it can also make employees’ lives more complicated. We want to apply tech in a way to get more consistency in our business…Building community is just so powerful. If you create a really exceptional living experience for residents who then want to stay with you longer, everyone wins.” — Keith Kimmel, president of operations at AIR Communities
“Where retention is concerned, advancing tenant relationships is a top investment priority for landlords across sectors. From upgrading amenities to considering third-party offerings to redeveloping existing properties, landlords are taking a serious look at how their portfolio compares to what is available on the market and what tenants now expect.” — VTS Global Report