- After record-breaking occupancy rates and rent rate increases in 2021, rental market analysts expect the market to cool.
- In June, the US year-over-year vacancy rate rose for the first time in 14 months.
- Owners and operators should be wary of getting caught in the ‘occupancy fallacy’—the idea that high occupancy rates in the near term will alleviate vacancy concerns longer-term.
Updated August 8, 2022.
After record-breaking occupancy rates and rent rate increases in 2021, rental market analysts expect the market to cool. We’re already seeing signs of a slowdown. In June, the US year-over-year vacancy rate rose for the first time in 14 months. The U.S. Census Bureau also reported a 0.2% increase in vacancy rates at 5.8% in the first quarter of 2022 compared to 5.6% in Q4 2021.
Sky high rent rates have been one of the hottest topics of the Summer in 2022. But not all markets are growing alike. Rent increases have been highly dependent on the market, and analysts expect rates to further stabilize in the coming months.
Higher-priced communities, Class A and B properties have experienced the brunt of rate increases. Demand in the short term for these tiers has remained steady as market-rate communities report continued ability for renters to pay rent. But for affordable housing communities, Class C properties, the shortage in truly affordable housing could pose challenges in the future.
High inflation across the board also has renters focused on affordability. In an April 2022 survey from Redfin, 64% of renters said that inflation is impacting their moving plans and 62% shared that they are concerned about rising rent costs.
As the market evolves, owners and operators need to plan for the future. A future in which occupancy rates are expected to reach an equilibrium in the second half of 2022, with further uncertainty in 2023.
Renters are contending with rising inflation, more flexible working arrangements, and uncertain political times, all of which influence people’s propensity to move. Owners and operators should be aware of just how mobile renters will be moving forward.
Renters have more options and can work from anywhere
Rent. CEO, Jon Ziglar, shared that another contributing factor to the disparity in rent increases we’re seeing across the country was the heightened appetite to move. Renters have great flexibility due to the new work-from-home environment, and many have migrated to key areas like the Sun Belt markets that were once much more affordable and offered a higher quality of living at more value. Major cities that experienced dips in rent rates during the pandemic have also risen back to pre-pandemic levels due to returning or new residents.
“You’re really going to see a difference based upon the livability of the city, the affordability of the city, and the resources around it because people are living where they want to live.” – Jon Ziglar, CEO of Rent.
The shift toward remote work is one of the biggest factors contributing to new moves across the country. Working from home is the new normal for many companies with 70% of renters saying they will continue to work remotely as often, if not more, in the future. With less pressure to live near the office, renters are assessing their options and using digital resources available to more efficiently find the next best home.
Renters are also redefining what an ideal home means to them, and where that ideal home should be. New factors are motivating renters to relocate, from ideological reasons to the need for outdoor space. Redfin predicts that renters will “vote with their feet,” moving to areas that align with their politics.
Savings and lifestyle factors are also making the top of renters’ wishlists. In a November 2021 report, the Rent. research team surveyed renters across the country about their plans to move and preferences. When asked about reasons for moving, respondents selected saving money, finding a property with outdoor space, and living in a safer neighborhood as the top three factors.
Redefining long-term needs
Higher interest rates have priced many would-be home seekers out of the market. So, homeownership is out of reach for more and more people. The median sale price for homes is up 15% this year and demand for real estate nationwide grew 9.1% this year, compared to a 17.7% drop in housing supply.
Families that went into a rental with a short-term mindset hoping to eventually purchase a home are now faced with highly competitive housing markets on top of new work environments and day-to-day needs. In these cases, it is natural that rental home priorities are different.
Attract new leads while keeping current residents happy
Losing a resident is no small cost for owners and operators. After adding up advertising and marketing expenses, repairs to the unit, and concessions, average turnover cost will be $3,976 this year–jumping from $3,850 in 2021.
In light of these trends, multifamily marketers can get ahead of the changing market by implementing strategies that nurture current residents. Through communication and reputation management, effective property teams strike a balance between attracting renter leads and keeping long-term residents happy.
To take full advantage of high demand, you can capture renters migrating to your area by giving them what they need in their search. A holistic marketing approach that reaches in-market renters through social media, search advertising and email marketing in addition to ILS (internet listing services) will multiply your lead count. Optimizing your online listings with virtual touring options and online applications will also alleviate long-distance leasing concerns for renters searching remotely.
The market is in a constant state of flux as renters settle into new ways of living and working through the pandemic. With the right strategies in place, properties can avoid being blindsided when renters begin their migration to new opportunities.