Multifamily rent increases cost landlords.

Multifamily rent increases cost landlords.

Since the pandemic threw the status quo on its head and rattled it, multifamily has been one of the gleaming aspects of commercial real estate, along with industrial. Rent growth’s capacity to continue justifies lower cap rates and contributes to price increases.

But nothing can remain in one place for ever. The ordinary person still has a salary that trails inflation despite a strong employment market, according to research on multifamily rents. Additionally, when consumers pay more, they frequently expect something worthwhile in return.

The “2022 State of Resident Experience Management Report” from Zego came to that conclusion. The analysis stated that, “Renters are going to see increases for the foreseeable future, albeit, not at such drastic rates,”. According to projections made by the National Apartment Association, annual rent growth will continue to increase through 2022, albeit at a moderate rate of 6.3 percent to 7.0 percent.
Although the industry may use the phrase “moderate,” consumers are unlikely to. The rule of 70, a quick calculation for the time required to double a value accomplished by multiplying the percentage rate of increase into 70, makes the amount even bigger than it might appear. Given all other factors being equal and a 7 percent annual growth, someone renting an apartment for $1,500 a month would end up spending $3,000 in 2032.

The turnover cost is at what is probably a record level when people leave, such as when they relocate to a place that is more inexpensive for them or that they believe offers a value that is more in line with what they pay. Zego estimated that, compared to $3,850 in 2021, the average cost of promotion and marketing, unit maintenance, concessions, and missed rent will be $3,976.

It would take 17.6 months to repay the turnover costs if you increased the $1,500 unit’s rent by $225, or 15%. And as Zego pointed out, according to a Zumper poll, 81.6% of respondents planned to relocate in the following 12 months.

This leads to a vicious cycle. Customers demand even more with increased pricing and are more likely to leave if they don’t get what they want. People move, turnover costs are high, owners and management increase rents to try to cover the expense within a reasonable amount of time. Their online reviews also have an impact on future visitors to a location.
According to Zego, “modern living features” are the main factor in renters renewing their leases, while a lack of such elements is the main cause of their eviction. “Renters always want the best value for their money, particularly now when rent prices are at their peak. New and modern is not only attractive, but it signals that companies prioritize updating the community.” Which means investing in community façade, unit features, and building technology. The other choice is to spend money on turnovers.
The SVN Vanguard team knows investors need an experienced commercial property management company by their side. Contact us for multifamily, industrial, office, retail, and general commercial properties for sale.

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