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Multifamily Residential: A Look at What’s Ahead

Posted by Alex Godwin-Austen on Apr 10, 2023

Do you want the good news or the bad news first? The bad news is that apartment absorption turned negative for the first time since the Great Recession.

The good news is that multifamily residential retention was very high in 2022. However, there were more move-outs than move-ins. Therefore, it’s not a move-out problem and units have been sitting vacant longer than any other time in the last 10 years- averaging about 32 days.

The other bit of good news is that most market-rate residents are paying their rent. It helps that renter incomes are in line with the cost of the rent. This is in spite of most rents going up in 2021.

On the flip side, affordability remains a problem, so it’s no surprise that low-income housing has the most challenges when it comes to people paying their rent. There’s a shortage of low-income, affordable housing.

Multifamily Residential Rent Update

RealPage points to the Bureau of Labor Statistics consumer price index (CPI) data that shows rent is cooling on every metric, except the government’s official one. Occupancy rates have been dropping since January 2022 for all product types. This may indicate there is no “flight to affordability.” In other words, people aren’t moving to find cheaper places to live.

Another bit of interesting data is that despite job and wage increases, housing demand slowed in 2022. However, job growth was at the second highest since 1939! Usually, job and wage growth lead to an increase in housing demand.

As of December 2022, occupancy was at 95%. This is the lowest rate since before the pandemic. While apartment rent and occupancy rates are quickly moderating, it still begs the question. Will ongoing moderation signal the return of a more “normal” market or are fundamentals shifting beyond normalization?

What’s going on? People aren’t doubling up. Demand didn’t weaken due to affordability. Part of it is that people tend to stay put when they’re nervous about the economy and other factors.

On the bright side, most American households will be employed as long as there’s not a big collapse. Once growth rates calm down, consumer confidence will climb and lead to greater apartment demand this year.

There’s a 12-month lag effect between asking rent. This is the principal indicator of rent, which shapes the consumer price index (CPI). One of the key metrics that the industry must monitor through 2023 is the loss to lease. It came down quickly. It caused year-over-year numbers to look dramatic as they are being compared to the abnormal year of 2021. Fortunately, retention rates should normalize this year.

Considering only 20% of the markets have experienced double-digit rent growth, the industry expects more conservative pricing with renewals. One area, which is the Sun Belt, has seen revenue growth that outperforms other regions. However, this gap has recently started to shrink. New lease growth in the Sun Belt has slowed down faster than renewals.

Multifamily Residential Construction Update

With 970,000 units underway across the U.S., multifamily construction has reached a four-decade peak. While the long-term implication of record development is positive, the Class A group may feel the near-term impacts. Moreover, multifamily residential housing starts are holding steady as single-family home construction drops.

Construction is occurring across the U.S., but the areas experiencing the most construction include Dallas / Fort Worth, Phoenix, New York, Austin, Charlotte, and Denver. The most significantly impacted areas include Austin, Nashville, and Charlotte. They have the strongest long-term outlooks with 15% of their inventory in progress. The number of apartment available is expected to climb in 2023 and 2024 leading inventory to grow by 3%.

In Seattle, 36% of all existing stock is in progress or in lease-up. For the Phoenix area, that number is 55%. DFW, New York, and Tampa have a favorable outlook for the year. Baltimore, St. Louis, Charlotte, Memphis, and Minneapolis have the weakest outlooks. Some markets experienced modest downgrades for different reasons.

Class A and Class B are very different. Class A rents are about 25% higher than Class B. Over the next few years, it’s expected to see Class B hit the sweet spot. RealPage indicates the rent growth outlook remains favorable. But occupancy will most likely pull back from current levels.

Even with this, market-level variation shows a divergence of performance expectations across markets through 2023. Though rent growth has already peaked, tailwinds show signs of growth in 2023.

In summary, overall demand is expected to remain even with occupancy rates expected to remain at 95%, and rent growth at 4% as CBRE confirms. Though there were few “flights to affordability,” there’s a possibility residents will debate whether to renew their leases or cut spending in response to inflation.

A large factor that will affect the industry’s outlook is the expiring tenant protections. Pandemic-era rent freezes and eviction moratoriums will expire this year. Landlords may take advantage of evicting residents who can’t pay their rent and use it as an opportunity to raise the rent.

Security Remains a Priority for Multifamily Housing

The combination of inflation, de-policing, supply chain snarls, releasing criminals for lower-level crimes to ease overcrowding, and reallocating police resources are adding fuel to the fire that could increase the number of crimes committed. These affect how the police, as well as the criminals operate.

For instance, the supply chain crisis drives lawbreakers to chase after high-demand, low-supply items. They know they will be able to sell it on the black market for good money. But they also worry less about getting caught with many crimes being reclassified to lower-level crimes. These tend to have little punishment.

The push for policing and criminal reforms has changed the attitudes toward how they’re managed. It’s forcing state legislatures to redefine how they classify crimes. Reducing some crimes from felonies to misdemeanors changes how policing is done. This changes the police department’s focus on which crimes they may prioritize.

Criminal justice reform has led to more problems than solutions according to the NICB Informer publication. This has led to cuts in police departments in terms of workforce and resources. To prevent injuries and deaths of people in police custody, some places have a no-response policy. This means the police won’t respond unless it’s life-threatening. Some lawmakers have also implemented laws that prevent the police from engaging in high-speed chases.

Put these together and it shows the need for multifamily residential properties to invest in security if they want a thriving community. Investing in security can make a difference in the multifamily residential property’s resident retention strategy, marketing, and reputation. One of the most effective ways to provide security that results in a higher net operating income (NOI) is video surveillance with remote monitoring.

How Video Surveillance Helps Multifamily Residential Properties

Deterring felons requires proactive security. Most traditional security systems are reactive in that they don’t do anything until after the crime happens. You can maximize security and safety with video surveillance and remote monitoring. These come with multiple layers of security integrated.

Security cameras equipped with monitoring services ensure your property always has both human and computer eyes on it. Trained monitoring operators work with video analytics to observe your property and spot things early. Watching hours of video can be mind-numbing. That’s why video analytics is an important part of security. But video analytics cannot work alone. Humans have the advantage of determining if the situation is real or a false alarm. And they know how to respond when it’s real.

This pairing of analytics and human operators speeds up reaction time. Whenever a situation arises, the monitoring operator evaluates the scenario and responds quickly and properly. On top of watching multifamily residential properties across North America, the trained monitoring operators are located away from the property.

This ensures they’re safe and allows them to see far more than security guards can. Monitoring operators have options in how they respond to any given situation. One thing you won’t have to worry about is them fleeing the scene. Human fight or flight response is strong and security guards don’t have nearly anywhere the kind of training law enforcement does. Security guards don’t always respond safely.

The operator can issue a verbal warning over the onsite speakers. They tell the intruders to leave or else the next action they take will be a call to the police.

It’s also important to be aware that an effective safety and security plan needs to have multiple layers. The more layers in a security plan, the less likely intruders will want to commit a crime on your property. Remote video surveillance contains multiple layers of security with their cameras, monitoring done by humans and analytics, and saving everything as recordings.

Multifamily residential property managers have a responsibility to help keep the community safe for everyone including residents, employees, visitors, delivery personnel, and vendors. Any injuries or accidents that occur in your community can lead to a liability claim regardless of what the person is doing. Fortunately, remote video surveillance can help lower liability concerns.

Video surveillance with remote monitoring is more affordable than you might think. Stealth Monitoring’s multifamily residential clients typically get a return on their investment within months. The technology can increase your net operating income.

To learn more about this technology, pick up this guide on Monetizing Security While Balancing Access, Safety, and Profitability. If you’re interested in learning more or have questions, please contact us.

Texas Private Security License Number: B14187.