The Upsides of Going Upscale: How Strategic Upgrades Can Increase Rent and Reduce Vacancy
Between competition from luxury apartments, higher expectations from millennial renters, and modern rental units entering the market, owners of older multifamily properties may need to consider rebranding their communities as upscale to compete effectively. Here are the best strategies.
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After a decade of high rents and low vacancy rates in most urban markets, multifamily owners have grown accustomed to seeing a seemingly endless demand for their units. But recent data suggests that this honeymoon may be coming to an end. In June, CNNMoney reported that rental prices had dropped 3 percent from a year earlier. According to their sources, concessions were up 12.5 percent compared to a year earlier and anecdotes of owners being more open to negotiating rents with residents were widespread. A similar trend was seen in Washington, D.C., where Washington Business Journal reported in March that rent growth had slowed to just 0.7 percent in the fourth quarter of 2017, compared to a national average of 2.6 percent.
These reports hammer home a key point that all multifamily owners and managers should remember: the rental economy can oscillate from an owner’s market to a renter’s market quickly, and those caught unprepared may find themselves struggling to keep their occupancy rates up. That’s why it’s so important to keep your property in peak physical condition — and that includes keeping it in line with the preferences of current residents. While owners in a tight rental market can afford to do the bare minimum in terms of maintenance and upgrades, residents in markets with an oversupply of housing have little reason to choose old or aging properties.
Multifamily owners must be responsive to market conditions, which today means offering high-end upgrades and premium services. These can come in the form of physical improvements or new levels of service, but one thing that all top-shelf properties have in common is a commitment to a well-managed and well-maintained property. Here’s how you can leverage upscale amenities to compete with newly built communities, stand out in renters’ markets, and maintain or even increase rent while minimizing vacancy rates.
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In addition to staying competitive irrespective of swings in the rental market, there are several reasons why property owners may want to elevate their offerings.
— Residents want more from their units: They’re not buying homes like their parents did, but that doesn’t mean millennials don’t want spaces that match their lifestyles and contribute to their wellbeing. As we discussed in an earlier blog, millennial renters love smart-home features, community spaces, and pet-friendly properties — and they’re willing to pay a premium to get them. They’re also comfortable paying people for services like cooking that they could complete themselves, but would rather not. Based on these trends, owners who don’t offer upscale amenities and services could be leaving money on the table.
— Compete with newly built communities: With their low ceilings, dated fixtures and floor plans, and abundances of “character,” older communities that have been maintained but never renovated or upgraded simply cannot compete with newly constructed buildings designed with today’s residents in mind. Magnifying this disparity is the fact that 80 percent of new apartments buildings are high-end communities, going by the Yardi Matrix definition. While you can’t readily change things like ceiling height or floor plan, making strategic upgrades can help owners of older communities get a piece of the growing luxury rental market pie.
— Branding and positioning: While large real estate investment firms usually have large marketing teams to select the right markets to target and build a lifestyle brand around their communities, owners of smaller properties or just a few communities tend not to think as much about branding. They should, though: positioning a multifamily community in a unique way can help residents understand where a property fits in a sea of seemingly interchangeable apartment buildings. Going upscale, especially in a market that is short on high-end housing, can be one of the easiest ways to start building a distinctive brand.
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Identifying what makes a particular community desirable can be somewhat nebulous — you might even call it “a look and a feel” — but for simplicity’s sake, we’ve broken down the most important elements into three key categories.
— Amenities: The top reasons people choose to rent are convenience and flexibility. Your job as a manager is to show them that living at your community is easier than the alternative, including owning a home. And this is especially critical if they’re paying luxury apartment rates. To attract this group, offer them things they can’t get in a single-family home. A gym, a club room that they can use for large parties, a pool they don’t have to clean or manage, community spaces — homeowners often can’t afford to have these coveted amenities in single-family homes, but luxury apartment renters can.
— Services: When you shop at Saks, you pay a premium price, but you expect — and usually receive — better service than you get at Target. The same is true of an upscale apartment community over a budget or affordable-housing community. This means doormen and receptionists, where relevant. It means mail service and housekeeping services. It means prompt responses to emails and phone calls and cultivating a personal relationship with residents.
— Physical condition of the property: Aesthetic considerations are a big reason why renters who can afford it opt for luxury communities. And while it may start in the design phase, creating an attractive environment for residents is just as much about maintaining all those little details that residents fell in love with in the first place. That in turn means following a robust inspection and maintenance plan.
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A mobile inspection platform can be a huge help in this regard. Property personnel who use Happy Inspector, for instance, can rate items at a much faster pace than they can with pen-and-paper forms, while improving the accuracy of the data. After collecting data, the results are automatically synced with an easily searchable cloud database, meaning no more error-prone manual data entry and no more spending time reading through scans and PDFs for the info you need. Mobile inspection platforms reduce the time and pain traditionally associated with inspections, so that you can keep your property in tip-top shape.
But these are just the basics. Today’s millennial luxury renters expect much more from the communities they spend their hard-earned cash to be a part of. For instance, if you can order it through your smartphone and pay someone else to do it for you, these technology-oriented residents are probably interested. To attract this lucrative market, consider offering package services, including hot and cold food delivery service, pet daycare and dog walking services, Lyft and Uber credits, and dating services (really!).
If all this sounds like too much for your team to manage, you’re not wrong. But there are companies out there that exist to fill those gaps. Amenify, for instance, administers an ever-expanding list of desirable amenities, while Henri helps you manage routine interactions with residents as well as your community’s social calendars, packages and more. LuxerOne’s locker system goes a step further and fully automates package pick-up, reducing the burden on your employees. These kinds of services are a win-win: they significantly lower the risk and barrier to entry of these upscale amenities, allowing you to give your affluent renters exactly what they want while still turning a profit.
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Exceed resident expectations with rigorous inspections!
HappyCo will put your residents at ease when it comes to winter worries: heating systems, icy walkways, and much more. But you’ll be treating yourself, too — by saving time and boosting revenue through rigorous, reliable mobile inspections.