When rents fall, like they did in 2009 there was little if any pricing power for owner’s to increase rents. The same holds true thus far in 2010. With historic high vacancy tenants have selection and can demand concessions, often in the form of price.
Since the recession began in 2008 any rent growth has been hard-fought. The size of the shadow rental market has never been bigger and to remain competitive the core of our business requires retaining good tenants along with marketing for new customers. This should be an absolute focal point of management’s daily efforts.
With current tenants (depending on the volatility of your local marketplace) small concessions can go a long way to securing renewals; $100 visa cards, Starbucks gift cards, etc. In today’s economy even grocery gift cards are an appreciated token for their consideration to remain for another lease term. We almost always offer to clean carpets at renewal time. This “service” is a help to the tenant and assist in maintaining property value by increasing the longevity of in-place flooring.
Following are four things to do when rents fall:
First – Make no assumptions. Are rents really falling? How do you know? The most direct method for identifying changes to your local market is through market surveillance. If competing properties are able to obtain higher rents than your property (competing properties being of similar age and quality), and occupancy levels are similar, find out what concessions your competitors are offering. A few years ago a free flat screen TV was a big deal (versus 30 days free rent). It was the type of premium that may be offered to a quality tenant signing an eighteen month lease. Today people are more cash conscious and would likely take the free month or other near cash equivalents like a $250 Visa or gasoline card. The economic times are dictating this. There is no hard science to tell us why a similar unit will rent for $795 and not $800- but we all know the social sciences tell us this is true.
Second– Don’t panic. Rule number one (but the second thing to do) is to: Focus on renewals. Taking care of current customers is the first step towards assuring vacancy doesn’t rise further. Every renewal means one less unit on the market. Too many operators focus on rent growth at renewal to the detriment of the property. Rent growth at the expense of higher turnover is a losing game when vacancy is already rising. Considering that vacancy is at an all time high nationally, any specific property will almost always lose when turnover increases in today’s marketplace.
Third- Determine a marketing strategy (based on the market surveillance) that will create incremental increases in revenue. Here are some examples:
Offer two bedroom units as one bedrooms by locking off one bedroom, thus, effectively turning the two bedroom into a one bedroom. If your market has an over-supply of two’s this will buy you some additional occupancy. This idea should represent a very small portion of available units while offering just one more method to boost occupancy.
In especially hard hit markets, offer two months free with a fourteen month lease. The first and last month of the lease are the free months.
Add basic cable for new tenants (for six months). It’s a concession you pay for over time while securing a new tenant today.
Fourth- Coordinate your efforts so that all on property and off-site personnel are aware of the urgency to focus on full occupancy and reducing vacancy AND the methods being deployed to address increasing revenue. Sometimes this means rotating staff from one site to another to cross train. Weekly or monthly staff meetings with “good” refreshments never hurt. Meetings should be one hour maximum, but well planned to cover specifics.
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