The apartment business is a fluid business. And, we are in the customer service business. And, oh yes, our objective is to make money- to build wealth.
Whether managing a four-plex or luxury hi-rise our job as property manager is to maintain (and advance) the viability of the asset. This requires maintaining margins in property operations- even when costs rise. Even through a shifting or unstable employment outlook.
Does anyone have high expectations for stellar rent growth in the multifamily marketplace in 2011? Probably not. How about a huge change in the unemployment outlook in the short term? Nope.
If 24-hour cities are having generational highs in vacancy and delinquency you can bet slow or no rent growth will also be prevalent in smaller markets… from Ipso to Indianapolis. There’s no place to hide.
Following is information to support our expectations of limited rent growth next year. Mainly, our customers are suffering. Here’s proof.
- Un-employment remains above 9%
- Social Security benefits will see no increase in 2011
- The president has ask congress to exclude pay increases for Federal workers
Based on Census estimates ending in December 2009, there are approximately 309 million people in the United States. Three states hold nearly 26% of the entire country’s population: California, Texas and Florida. Here is the unemployment rate is these three states:
- California: 12.4% State Population: 36,961,000. Unemployed persons: 2,258,000
- Texas: 8.1% State Population: 24,782,000. Unemployed persons: 892,000
- Florida: 11.9% State Population: 18,537,000. Unemployed persons: 1,096,000
That’s over four million people in just these three states. The real impact is that this represents four million households! With millions of people out of work and millions more seeing no increase in wages or government benefits it’s hard to believe many property’s will be experiencing very much organic rent growth.
These are examples that should bolster your consideration to pursue all sources of incremental income to bolster gross revenue.
Shifts in Federal policy impacts our business now more than ever. Example: how many properties would see a drop in rent collections if un-employment benefits are not extended? This is just one example of how policy impacts our business. Mr. Benanke is doing his best to assure our economy makes progress against the recent shock to the financial system of the United States. But the jury is still out.
As the cost of commodity’s increase there is continued pricing pressure on the products we buy at the property level- carpet, fixtures, paint, etc. How do we pay for higher costs? Usually with rental increases. Reliance exclusively on rent growth alone to drive revenue growth in the current economic environment is a dereliction of duty.
To answer the question, can rents rise in 2011 I think the answer is… not much. Assuming stable apartment occupancy, most revenue growth you will generate next year, as property manager, will come from your own efforts from identifying and implementing ancillary sources of revenue.
I’m not saying you cant grow revenue. I’m suggesting that we are long past sole reliance on rent growth to drive increasing revenue. Life as we knew it five years ago, with automatic 3%, 5% or 7% rental increases is not part of our immediate future.