Renters Not Balking
As owners push rents, and renters sign on at higher prices, leasing prospects are faced with daily changes in unit pricing. Yet apartment shoppers aren’t irked.
The perceived “bait and switch” from the difference between the advertised rent of an apartment unit and the price at time of lease signing is largely a passé issue, apartment Internet marketing experts say. Concerns over whether rental prospects would balk at price differences generated by either revenue management systems or traditional market comps appear to have been largely overblown, with most multifamily technology and marketing experts pointing to real-time data feeds and a changing consumer psychology.
“We are not seeing that friction at all,” says Peggy Abkemeier-Alford, president of Santa Monica, Calif.–based apartment ILS Rent.com. “Most of our clients are on a direct feed to Rent.com with their property management system, so as their pricing is updated in the system, it is updated on their listing, as well, often several times a day.”
Such real-time data links have taken the industry a long way from static apartment advertisements with prices set in stone, prices that could be vastly different by the time a prospect visits a community to sign a lease. With revenue management technologies automatically recasting unit prices based on daily demand, apartment hunters could still feasibly see a perceived “teaser” rate on a unit, only to be quoted a different price as early as the following day. While data feeds close the window on that possibility significantly, revenue management pros say consumers have come to expect a different shopping experience for apartments, and price differentials—should they occur—can just as likely be the beginning of a successful conversion conversation.
“Everyone using revenue management is also using CrossFire or Vaultware or another product that is taking the data out of your property management system and is populating all of the ILSs, your website, and your call center, and everyone is typically on the same pricing every day,” says Janine Steiner Jovanovic, president of Carrollton, Texas–based RealPage’s YieldStar revenue management division. “You do have daily changes because of the flow of supply and demand, but I think renters are really getting used to that. They understand that apartments are now being priced the same way as a rental car, a hotel room, or an airline ticket. It is a transaction process that folks are a lot more comfortable with.”
Abkemeier-Alford agrees and points to changes in how consumers look for information on the Internet. While price is still a primary qualifier, instant access to property information, guest cards, and leasing documents have created a hybrid renter prospect who completes a leasing process both on- and offline and not only recognizes but expects the transaction possibilities and limitations in both realms. “One of the other trends affecting apartment marketing is in the transparency and availability of that information,” Abkemeier-Alford says. “It’s becoming increasingly clear that mobile and social computing trends both play a big role in making it easier for renters to find a perfect apartment in the perfect location for their perfect price at the perfect time.”
Not everyone is completely sold on tech-powered transactions for apartments, however. While recognizing that property management and revenue management software accomplish a great deal for apartment marketers, Bend, Ore.–based G5 Marketing CEO Dan Hobin says advertising a price range can do a good job of qualifying prospects and still provide on-site flexibility for price changes. “Apartment prospects are still shopping on price, and driving semi-qualified leads by using a range is better than driving zero leads at all.”
Johnsey agrees that decoupling played a major role in 2010 rent fundamentals and says that unit demand in 2011 will continue its reversal from two- and three-bedroom suites back to one-bedroom and studio apartments. “The REIT earnings calls are all mentioning the unwinding of the demand for [multitenant units], and I think there is a lot to that,” he explains. “We are already seeing greater demand, and, consequently, greater pricing power, for one-bedroom floor plans compared to two- and three-bedroom units.”
And while tepid economics have encouraged cagey apartment seekers to finally strike out on their own, they’ve done nothing to bolster interest in single-family home purchases, traditionally the greatest drain on both apartment prospecting and move-outs. That market dynamic is likely to continue into the near future.
“As the demographics are working in our favor, simultaneously the long-term relationship between owning and renting is clearly turning to a figure that is more favorable to renting than it has been in the past,” explains Greg Willett, vice president, research and analysis, at Carrollton, Texas–based RealPage’s M/PF Research division, which is forecasting an average 5.1 percent jump in 2011 rents nationally and another 0.8 percentage point increase in occupancy levels that collectively should increase revenues by 5.9 percent for apartment owners.
“I don’t think you are going to see too many people opting for home purchases,” Willett adds. “As a consumer, you’d have to be more confident in your employment picture, and you’d have to be confident that housing prices have hit bottom or are close to bottom. I don’t think that describes very many people.”
Nor can those seeking a place of their own avail themselves of a brand-new apartment. According to the Washington, D.C.–based National Association of Home Builders, the number of multifamily construction starts forecast for 2011 stands at 133,000, “far short of the 250,000 to 300,000 units that would be required to keep supply and demand in balance,” says NAHB chief economist David Crowe. Given that multifamily starts in 2010 and 2009 were 116,700 and 108,900, respectively, Willett says that some analysts think market demand could even support absorption of 400,000 to 450,000 multifamily starts.
“The supply situation is pretty much cast in stone,” Oden says. “It’s not like cornflakes. You can’t go to the grocery store and just buy more multifamily housing. At some point, starts will get back to more historical norms, but I don’t see that happening in the time frame of 2011 to 2013.”
The combined collapse of the single-family housing market and lack of new apartment stock has rental prospects flocking to existing apartments as the economy begins to improve, most evident in the drastic boost to effective rents (rents net of concessions and specials) in the third and fourth quarters of 2010. (For more on this trend, see “Special Effects.”)
