Kingsley: Renewal Intent Rises Again, Rental Rates Hold Less Sway Over Renewal Decisions
Delving down to the market level, overall resident satisfaction is constant among large metro areas compared with a year ago. The largest increase in satisfaction transpired in Denver, with 1.8% more residents reporting they’re satisfied with their experience than in Q2 2016. While the overall satisfaction rate for Denver throughout all of 2016 was lower than during the previous year, this year has proved different, with satisfaction scores so far topping those of 2016.
Increases in Renewal Intent and Value for Amount Paid
In the first quarter of 2017, the upward trend of national renewal intent halted after three quarters of significant increases. During this past quarter, however, the positive trend returned with a jump of 1.0% from Q1, bringing the national renewal intent to a three-year high of 54.0%.
This trend goes hand-in-hand with the increasing number of residents who are satisfied with the value they receive from their apartment for the amount they pay. After almost two years of decreasing satisfaction in the value for amount paid, a turning point occurred in the second half of 2015. Since then, an upward trend has developed (see chart, “Value for Amount Paid,” above). However, as with renewal intent, there was an interruption in the satisfaction-with-value trend during the first quarter of this year. The second quarter of 2017, however, saw the restoration of the upward trend, with a gain of 0.3%, resulting in 55.0% of residents being satisfied with their value for amount paid.
Given the current multifamily market, notes Kingsley, it’s not surprising that both renewal intent and value for amount paid increased overall for renters in Q2 2017. By the end of the year, it is expected that just under 400,000 new units will have come to market, which is 38.3% more than were delivered in 2016.
The demand for apartments can’t keep up with the new supply, which is pushing the vacancy rate higher. The national vacancy rate already increased from 4.3% in Q1 to 4.4% in Q2, and 222,000 new units are still expected to be delivered to market before the end of the year. With the oversupply, specifically of Class A buildings, which are at a seven-year construction high, apartment owners and managers are being pressured to keep rents low and competitive to entice prospects to lease and residents to renew.
With lower prices, renters are becoming more satisfied with the value for amount paid to rent an apartment than if they were to purchase a house. With the low inventory of resale houses, the limited supply of new homes in affordable brackets, and home prices reaching a 31-month high at the start of this year, homeownership has become less the norm, especially for the millennial generation.
The limitations on purchasing a home in the current market, coupled with lower rents from oversupply, have created a heightened desire among residents to renew their leases and extend their time at their rental units.
Market Trends Follow National Trends
This quarter’s market trend data support the national renewal-intent and value-for-amount-paid trends. When looking at renewal intent by market, only two metro areas experienced a decrease in renewal intent compared with last year, while six of the markets saw an increase of more than 1.0%. Renewal intent dropped in Miami and San Francisco, by 3.2% and 0.4%, respectively. Meanwhile, Washington, D.C., and Atlanta had the largest growth in renewal intent, by 7.6% and 3.5%, respectively.
Many markets also saw increases in value for amount paid, with Denver, Miami, New York, and Washington, D.C., all increasing by more than 3.5% from last year (see chart, “Value for Amount Paid by Market,” above).
This is the first significant increase in value for amount paid for New York over the past 12 months. New York tops the list as both the metro with the most demand for apartments in Q2 2017 and the metro with the most new units to be delivered this year, at 28,158 new units. In comparison, the largest drop in value for amount paid happened in San Francisco, with a decrease of 3.4% from last year. San Francisco failed to make the list of the top 15 markets for demand this past quarter and came in at No. 22 for new units to be delivered this year, with only 4,587 units.
Rental Rate Becomes Less Influential on Renewal Decisions
The changes in renewal decision-making factors also reinforce the national trends seen this past quarter due to lower rent prices, reports Kingsley. In the past year, the importance of rental rate as a renewal decision factor declined by 2.2%, dropping from 56.4% in 2016 to 52.2% so far this year.
Over the past year, rental rate has been the top decision-making factor, followed by location as a close second. But in Q2 2017, location ranked as the top renewal decision-making factor, with rental rate coming in second. For residents who are unsure or unlikely to renew, rental rate remains the top decision-making factor when it comes time to renew. However, for residents who are likely to renew, rental rate dropped to third among the most influential factors, behind location and community management.
Controllable Factors Affect Leasing Decisions
Many factors influence a renter’s community selection, Kingsley found. Location ranks first, with 91.0% of prospects listing it as important to their leasing decision. While location may not be a controllable factor, the second-ranking factor on the list, property appearance and quality (90.0%) certainly are. With only a 1.0% difference between the importance of these two factors, enhancing property appearance and quality could make a notable difference in persuading prospects to lease at a community.
Over the past five years, three additional factors have increased significantly in importance regarding leasing decisions: property staff and management, community amenities, and online ratings and reviews.
Whereas community amenities may not be easy to change, staff and management and online ratings and reviews are more easily controlled factors. Online ratings and reviews, in particular, have increased in importance by 12.0% since 2012. Currently, Google, ApartmentRatings.com, Yelp, and Apartments.com rank as the top four most-useful online ratings and reviews resources.
Looking back three years, the top four most-useful online resources were ApartmentGuide.com, ForRent.com, Zillow, and Yelp. Additionally, since 2014, the usefulness of Rent.com, Facebook, and Apartments.com as reported by prospects has skyrocketed, by 19.0%, 18.0%, and 12.0%, respectively.
Source: multifamilyexecutive.com
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