Apartment tenants with pending renewals are beginning to opting for short-term or month-to-month leases rather than long-term leases, according to the latest survey from the National Apartment Association, which found that nearly 35% of landlords said that some portion of tenants renewing leases signing short-term lease structures. The previous monthly report—this latest survey was conducted from July 20 through July 24—did not address short-term lease structure, however, the data notes that tenants’ preference for short-term leases has been increasing since March.
Tenant preferences are clearly changing, and the trend toward short-term lease terms could only be the beginning. Apartment owners are beginning to lose confidence in the market, the survey also found, a development that is appears to be accelerating. In the most recent survey, 23% of multifamily owners and operators anticipate that it will take one-to-two years for operating metrics to recover and return to pre-pandemic levels. In April, only 17% of survey respondents made the same claim. Most owners continue to believe that the market will recover in the next 12 months, but the numbers appear to be shifting to a longer recovery timeline.
At the same time, operating expenses have increased during the recession. Almost half of apartment owners and operators have experienced a marginal increase in operating expenses and an additional 11% have experienced a significant increase in operating expenses. These operating expenses are difficult for landlords to absorb with rent prices declining and rent collections struggling. Freddie Mac Multifamily’s 2020 Midyear Report expects a decline in gross income growth of 3.3% to 4.2% for the year, and the National Multifamily Housing Council’s Rent Payment Tracker shows that rent collections in September are down 2.4% through the mid-month compared to the same time in August.
The NAA survey was conducted before the CARES Act unemployment benefits expired. In the survey, however, respondents were not concerned about the expiration of the funds. Most respondents said that fewer than 10% of residents would have an issue paying rent without the additional benefit, and only 25% of respondents said expected 11% to 20% of residents to struggle making a rent payment without the additional benefit.
Survey respondents were universally concerned about, though, were the CARES Act eviction restrictions. 92% of respondents said that the CARES Act 30-day “notice to vacate” requirement was confusing, complicated and conflicts with local policy. Additionally, most owners said that restrictions on eviction were unnecessary during the pandemic because a limited number of residents would face eviction for non-payment. More than 90% of owners responded that fewer than 10% of residents would face an eviction if no restrictions were in place, an increase compared to the June survey.
The July NAA survey is conducted in partnership with IREM sponsored, and received responses from 82 property owners with a total of 326,292 units.