Unchartered waters. Uncertainty. Unpredictability. Many people use terms with the prefix “un” to describe the effects of the COVID-19 pandemic. I do too. But my preferred term is “unless.” From my perspective, you’ll face unchartered waters, uncertainty, and unpredictability—unless you use data analysis as a forecasting tool.
Fortunately, we have plenty of data on multifamily leasing trends over the course of the pandemic: MRI Software has been contributing to the NMHC’s Rent Payment Tracker while compiling data of its own on more than 1 million market-rate units in the U.S. Analysis of this data has been illuminating. Below I identify five findings that accompanied some of the big headlines, such as rates of collections and fluctuations in lease pricing and landlord concessions, and what they indicate for the months ahead.
Delinquency and Dates of Lease Signings: No Correlation
I had expected that people who signed leases long into the pandemic (e.g., November 2020) would have lower amounts in arrears than renters who were locked into leases at the beginning of the pandemic. My assumption was that later in the pandemic, people would have had a much better picture of their personal financial situation. They had survived the rounds of summer layoffs and had a good sense of whether their jobs were secure.
But I was wrong. As it turns out, amounts in arrears were consistent regardless of the month in which the lease was signed. In our data set, the average delinquent account with more than one month of delinquency was at 3.5x base rent, or 3 ½ months behind—with very little variation between, say, the months of July and November.
It’s possible that uncertainties surrounding stimulus packages played a role in making later months as precarious for these delinquent renters as earlier months, but my overarching takeaway is that these renters were simply unprepared to cope with surprises. This finding confirms what top nonprofit organizations and media outlets have warned for many years—that many Americans lack a financial safety net.
Transfers Consistently Moved to Larger Units
According to our data, one-bedrooms, and, to a lesser degree, studios have been the losers when it comes to transfers, each down about 35%, while two-bedrooms and three-bedrooms have been the winners, up 36% and 48%, respectively. I interpret this development to be a result of people who really like their community making economic decisions to find roommates: Two incomes are safer than one in times of economic turmoil. Alternatively, tenants may have felt cooped up with the people they lived with, given the growth in work-from-home arrangements. Lower prices made the upgrades more feasible.
But the available inventory of smaller units was quickly absorbed by new residents, who took advantage of lower rents and valuable concessions. As workers return to offices, we are likely to see a continued rebound in the popularity of one-bedrooms and studios.
Landlords Demonstrate Sound Principles of Expiration Management
The past 12-plus months have been characterized by rising concessions and lower lease pricing, which reflected the law of supply and demand. But landlords were not just thinking about the short term. Many have been planning ahead for summer 2021, when demand and prices are expected to rise significantly: Summer is the traditional busy season, and this year it presumably coincides with the waning of the pandemic and the beginning of an economic recovery.
Landlords have strategized accordingly. In June and July 2020, more than 70% of leases signed had 12-month terms. That percentage dropped to 56% in January and has not yet exceeded 60% so far this year. Expiration management, in other words, continues to influence leasing despite the constraints of the pandemic.
Month-to-Month Extensions Gain Traction
Although the 12-month renewal is the most popular for renters at the end of their lease terms, month-to-month terms have noticeably increased, from 20% pre-pandemic, dipping to 16% in July, and peaking at nearly 25% in March 2021. This is likely an indicator of residents seeking flexibility or landlords administratively dealing with eviction moratoriums. But the increase also suggests that many renters do not share the positive outlook of landlords at this point in time.
Significant Rise in Tech Adoption
Social distancing fostered more reliance on technology, especially in regard to electronic rent payments (up over 25%) and applications (up over 200% year over year). Virtual tours also took off as a result of the pandemic, moving from pilot to must-have in record time. We can expect the momentum to persist—once you adopt technology, you don’t go back. Renters adopted technology to avoid in-person interactions, but they became accustomed to it and started to appreciate its convenience. Today, it’s an expectation, and landlords who offer tech-enabled services will have an easier time of attracting and retaining tenants.
What’s Ahead
These five findings didn’t generate the kinds of headlines that news about collections and pricing did, but they offer insight into tenant and landlord behaviors that we can expect in the upcoming months. Here’s what I anticipate: Until the pandemic comes to a decisive end, tenants will continue to demonstrate risk aversion by choosing shorter-term renewals or by doubling or tripling up on occupancy. But unwelcome surprises for some cannot be ruled out.
Landlords, meanwhile, are well positioned to take advantage of the economic recovery, which seems likely to emerge during the summer season. Fortunately for them, the growing preference among tenants for shorter renewals aids them in their expiration management practices.
Technology will pervade all aspects of leasing and collections, which is good news for those of us who track data because these tools further streamline the process of gathering it. If we take the next critical step of analyzing the data we compile, then we’ll be far better prepared to navigate the upcoming months. Unquestionably.
