But so it is, and operators, like Camden, that are plugged into revenue management technologies might have an upper hand when it comes to pushing rents in 2011. In addition to offering leasing professionals a little algorithmic confidence, demand forecasting software is likely to continue its demonstrative track record of achieving rent premiums relative to market.
“We are looking for a 2 percent to 3 percent real rent growth just based on the market rebounding, and we think you’ll see a 3 percent to 5 percent increase if you are using a revenue management system,” says Phoenix-based Alliance Residential managing director of asset management Brad Cribbens, who says his firm recently boosted an existing $100 rent premium over comps in the Albuquerque, N.M., market to a $300 premium after implementing revenue management technology. “It is just a smart way to look at supply and demand factors. It takes the emotion out of the decision and looks simply at availability, demand, and historical traffic patterns.”
And emotion is likely to cloud the renewal process in 2011. After leasing agents desperately tried to keep residents in place to maximize occupancy and cash flow during the recession, sharp increases in 2011 asking rents will put pressure on agents to about-face and boost renewal rents. For renewing residents rebuffed by apartment firms offering deeper discounts to new lease-ups in 2009 and 2010, the future isn’t getting any brighter, as the market is anticipated to bear take-it-or-leave-it renewal hikes of up to 20 percent. “Say renewals in general should be 40 percent to 50 percent or better,” Cribbens says. “Right now, we don’t mind if we start dipping into the 35 percent capture rate, because that means that we are actually getting $100 to $150 increases. In our case, we are not looking for $15 to $20 bumps; we are looking for significant gains, and we recognize—and I think the industry recognizes—that you have to concede some renewal stability in that conversation.”
Community Cache
Not that apartment firms will be kicking residents to the door. Cribbens cautions that no property should totally cannibalize NOI for rent gains, but says “smart and deliberate decisions” will help to push rents and result in a corresponding capital-to-valuation increase of asset worth. Creating a sense of community will continue to be vital in that regard, and the emergence of social networking could prove to be a valuable ally in retaining residents and raising prices at the same time.
