Apartment Retention is Doing Well, but What About Revenue?
The coronavirus pandemic has affected every industry segment in some way or another, and the real estate market is no exception. At the height of the pandemic in April, apartment retention hit an all-time high in the United States, with the overwhelming majority of American renters being either unable or unwilling to move or relocate. Of those renters who had a lease that was expiring in April, nearly sixty percent (57.9 percent) chose to stay and renew their lease.
But while this may not come as a surprise, what might surprise you is that despite record-breaking retention rates, rent revenue simply didn’t see the same growth, only growing slightly over 2.5 percent year over year in April. This is the lowest rate of growth since early 2011. But why? Simply put, landlords didn’t capitalize on renewal demand.
The pandemic’s effect on collecting rent
Another threat to revenue caused by the pandemic is the very real possibility of missed or late payments. But is the worst behind us? The National Multifamily Housing Council (NMHC) recently conducted a study that showed that nearly 85 percent of apartment households made either a full or partial rent payment by April 12, in its second survey of industry professionals. This number is up 15 percentage points from April 5, a sign that things may be moving in the right direction.
Landlords are understandably happy about this trend of the majority of renters paying their rent, to help ensure that their communities can operate efficiently and safely for everyone and so they can help tenants who legitimately need help. But unemployment rates continue to rise and some residents have reported delays in receiving financial help, which could have an effect on what we see with future months’ numbers. Fortunately, industry experts predict that as unemployment benefits and federal aid continue to roll in, that we should see continued improvement in rent payments, driving revenue.
Multifamily’s impact on the economy
The multifamily industry contributes nearly $3.5 trillion to the American economy and supports more than 17 million jobs. Bob Pinnegar, president and CEO of the National Apartment Association, explains that “apartments are an economic engine that helps drive the economy. There is already a severe imbalance between the current demand and current housing supply. If we don’t take steps to preserve what we currently have, then we’ll be facing a worsened affordability crisis on the other side of the pandemic.”
Apartment retention trends
Going into the month of April, it was lower-priced apartments that had the highest rates of retention. Class C properties, those properties that are generally older and possibly in need of renovations, renewed nearly 60 percent of their expiring leases.
Class B properties, or properties that aren’t quite as old or outdated as Class C properties but that are older than Class A properties, had a retention rate of 56.4 percent. Class A properties came in lower, at just over 50 percent — but this still set a record for this class of properties. Historically, this group sees the highest turnover, primarily due to the strong competition of units at the same price point.
Fortunately, while it may take a while for revenues to return to pre-pandemic levels, it looks as if the worst is behind us, which is good news for landlords and building owners alike, who depend on rent revenue to pay the annual property taxes on their buildings, as well as pay staff and provide necessary maintenance and upkeep.