In light of all the changes that property managers have put into action over the past 6 months, we wanted to get a sense of how it all added up so far. That’s why we sat down with Robin Young, Senior Researcher at Buildium. In this interview, we dive into the current state of the rental market for property managers, the impact COVID-19 has had since the start of the pandemic, along with two of the latest Buildium reports that help put it all into quantifiable context.
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The following transcript has been edited for brevity and clarity.
What’s happening right now in the rental market?
Robin Young: At the beginning of the pandemic, we were seeing record-low lease signings, record-high retention rates—and that was because many renters across the U.S. were sheltering in place, and it really just suppressed the leasing season. But in late May, we saw all of that pent-up demand hit the market all at once. We had a feeling that wouldn’t be sustainable, and sure enough, it just ended up being a temporary bump in lease signings that just could not outweigh the sharp decline that we saw at the beginning of the season.
As a result, according to RealPage (our parent company), leasing demand in Q2 was about a quarter of what it would have been during a normal year, which is a really surprising statistic. Since then, leasing has continued at a pretty good clip, but property managers are really going to feel the impact of that slow start to leasing season through the rest of the year—especially in markets that were hit really hard by the pandemic.
Tony: Yeah, it’s crazy the amount of change property managers have had to go through over the past 6 months, and it’s all reflected there.
Robin Young: And there are certain cities that are just feeling this. A lot of them are those expensive coastal markets that happened to be hit really hard, like New York City, San Francisco, Los Angeles—these cities have lost thousands of renters actually over the last few months. This is because renters are moving in with family and friends. As they’re working remotely, they’re realizing they don’t need to live in these expensive places, so they’re moving to cheaper markets, and a lot of people have bought houses over the last 3 or 4 months.
The national occupancy rate for rentals actually fell to 95.2%—the number itself isn’t the issue, it’s that the number hasn’t fallen at the peak of leasing season since the last recession. So that’s been a really interesting indicator to watch. On a national level, turnover is expected to stay pretty low through 2020, which seems like a good thing on its face; but the problem with that is that when renters aren’t moving out, property managers aren’t raising rents. And that’s something that they’re not really doing in this climate anyway.
And so as they’re offering concessions on new leases and renewals, there’ve been some really big rent cuts in certain cities, like the ones that I mentioned: New York, San Francisco, but also Seattle and Boston. So they’re seeing really big cuts in rent. And overall, on a national level, rent growth is pretty much flat over the last year.
Tony: We’ve been hearing that on the ground as well, and, of course, in Boston.
What’s the latest on how many residents are able to keep up with rent payments and federal government aid?
Robin Young: This is something that everyone has been following this summer as an indicator of how healthy the rental market is, and also Americans’ personal financial health. So, almost 80% of residents have paid their rent so far this month; that’s as of last week. That is only 2 points below where it was a year ago, which is pretty shocking. I think we’ve all been waiting for the other shoe to drop as far as the moment that unemployment would start to catch up to the rental market. Up until now, things have been sustained by these federal aid packages like the CARES Act that gave renters extra unemployment benefits to help them pay their rent every month—and those ended at the end of July.
And so we haven’t really seen the impact on August rents, but it’s got to hit in September, right? It has to happen sometime, and so I think we’re all biting our nails a little bit as we watch this, especially because there really hasn’t been any direct federal action to help the rental market. So it’s a really scary time for a lot of Americans, and we’re doing everything we can to stay on top of what the government’s going to do to help.
How are these economic shifts affecting property managers?
Robin Young: So, I think we’ve all become more aware than ever of the ripple effect that comes when people can’t pay their rent. When residents can’t pay their rent, it’s felt by millions of people—all the way from rental owners who need to pay their mortgages, and 50% of these are mom and pop businesses that have just a handful of units and razor-thin margins. Property managers’ fees are usually based on rental income, and so they’ve been forgoing their full income for months now in many cases. Then there’s tens of thousands of other industry employees—like leasing agents, maintenance workers—and they may not be getting paid, either.
Even in properties where residents have been able to pay so far, flat rent growth makes it really hard to keep up with the rising costs of maintaining a property. So it’s putting them in a really difficult position, and everyone in the ecosystem is trying to figure this out. It seems like the only solution is federal aid that would directly help residents make rent payments. That’s the only way to solve it.
Tony: Right. I think while a lot of these factors are definitely impacting property managers, what’s interesting is that what we’re seeing here at Buildium is that it’s not all doom and gloom.
Is there any potential upside for growth?
Robin Young: There has been a bright spot for all of us working at Buildium, because we’re watching what’s happening with technology use in this weird environment that we’re all in right now. Tech use has gone way up. When the pandemic first hit in the spring, property managers made a ton of changes overnight to the way that they were running their business. They had to support their teams in working remotely, their residents who are sheltering in place or maybe having to work high-risk jobs.
Their rental applicants didn’t want to view units in person anymore; their vendors were making really tough decisions about whether or not to enter buildings for non-emergencies; and their clients needed to continue getting business done even though they couldn’t see property managers in person. And so they had to fill all of these needs on really short notice. So there were some technologies that had been popular for a long time that all of a sudden, a broader range of property managers were using—things like online payments, online leasing, document sharing, and videochatting. They were doing all of these things with more vigor than ever before.
Then, teams were also adopting tools they hadn’t used in the past, like virtual tours, self-showings, remote inspections—things to help them really close the gaps in their process and bring it online. For obvious reasons, every person—all the way from rental applicants to the owners of those properties,—they all needed to be involved without leaving their houses. So, it’s really been amazing watching this happen.
The thing that we feel most hopeful about is that when it’s a different environment and property managers are looking to grow again, all of a sudden, they’re incredibly well set up to scale their businesses with all of these same technologies that have been helping over the last few months. So we’re watching that really closely, and we’re excited to see which changes property managers made for practicality now become the way that they choose to run their business when things go back to normal.
Tony: Many of those things for sure are going to become permanent installations. I know with a lot of the property managers that I’ve talked to, they’ve said, “Well, why do we want to do meetings in person in the future unless we need to?” Because that takes up so much of their day and their time.
What’s going on in your world these days?
Robin Young: So, as I keep alluding to, I ran a survey of property managers in late spring to figure out how COVID-19 was impacting their businesses during that first wave of the pandemic. I had a bad feeling that it might not be the only wave; and even if things improved over the course of the year, I thought it would be really interesting to show how things have changed over time as the pandemic evolved. So, I spent the last couple of months digging into those responses to both measure the different facets of their business that the crisis had impacted, and figure out which were hit hardest—and then also figure out what kinds of decisions they were making to help their residents, clients, and staff.
What were the most surprising data points that you noticed?
Robin Young: As far as the Growth Report, there’s a statistic that we’ve been talking a lot about ever since it came up in the data. As of late May, when I ran the survey, a lot of markets had just endured some really rough times; and so I was expecting property managers to tell me, “We’re in a cautious spot. We’re going to hold off on growing until things look a little bit better.” What I actually found was that 77% of property managers still said, “I’m looking to grow my revenue in the next two years, and I think it’s going to happen.” And just as many—76%—felt confident that they’d be growing their portfolio in the next two years.
So, that was really surprising. And it does represent a sizable drop from last year, when 88% of property managers anticipated revenue growth and 84% anticipated portfolio growth. So that drop indicates that they are recalibrating their plans based on what’s going on, but overall, they’re still feeling really optimistic despite these enormous headwinds that none of us have ever faced before. So that left us feeling really hopeful about the future of this industry, and I’m really excited to see how they’re feeling when I survey them this month.
Tony: That’s fascinating.
Robin Young: It really is. The other data point is also something I had mentioned earlier from the Leasing Report, and it was that leasing demand in Q2 was about one-quarter of what would happen in a normal year. That’s based on the five-year average calculated by RealPage. This was especially true in those markets I keep mentioning: New York, San Francisco, Los Angeles, Boston. This is because a lot of the new construction has been apartment buildings in really dense, central neighborhoods in these cities, which are exactly where residents are feeling a little apprehensive about living right now. And so this number, the quarter of demand that we normally get, that’s the best indicator that I’ve seen of just what a strange leasing season this has been and the ground that property managers are going to have to make up over the summer, just to make sure that their units are full as we go into a slower season.
Tony: Right, not to mention the curveball that the whole pandemic has thrown to college housing and a lot of different verticals. And that leads me to the next question.
Which property types and verticals are the most resilient to the volatility?
Robin Young: In these numbers that I’m talking about—these growth expectations—I noticed there were some really interesting differences when you break the numbers down by property type. They really do follow the narrative you would expect, with a couple of surprises. The property managers that have certain property types in their portfolios are feeling more confident about their growth; and those property types that they’re feeling optimistic about are single-family rentals, multifamily homes (like townhouses), luxury rentals, community associations, and mobile home parks—which is something that I’ve written about before, and just continued to provide demand even when there’s a downturn, which is incredibly interesting.
What all of these property types have in common is either steady demand from residents or steady income for property managers, even in the face of the current crisis; so, that’s what makes them feel confident about these property types. This is in contrast with property managers whose portfolios contain property types that have been hit harder by the recession. They’re taking a step back to reevaluate the future of verticals, like senior housing; student housing, like you mentioned; vacation rentals. They’re just taking a step back to say, “Here is how we see the pandemic impacting us over the year outside of the immediate impact”—and then they will get back in the game.
Like I said, property managers across the board are really still feeling very confident about their growth in years to come, no matter the property types they manage.
What’s coming up next in Buildium research?
Robin Young: So for me, this time of year is survey season, which means that right now, I’m actually running four surveys concurrently looking to figure out what the impact of COVID-19 has been on every single facet of the rental market. So I’m surveying renters, rental owners, association board members, and resurveying property managers to see how things have changed throughout the year. I consider right now to be another important inflection point in the pandemic, where the future is a little uncertain, and I wanted to see how each of these groups are feeling about it—all to gather intel for property managers on how they can better serve their renters and their clients. So, I’m almost in the process of analyzing all this data and putting it together with the market research that I do year-round. And this will all turn into the 2021 State of the Property Management Industry Report, which we release every year in October in collaboration with NARPM.
The second thing is that in September, I’ll be presenting my research at RealPage’s now-virtual RealWorld conference. I’ll be talking about what we’ve been discussing today—the full impact that the pandemic and recession have had on property managers’ growth outlook. So, I’m pretty busy right now!
Tony: Yeah, I think you’ve got your hands full!
Robin Young: I’ve got a couple of things going on, but helping property managers stay on top of how COVID-19 has transformed the rental market is a huge honor. I love getting to do this. I love feeling like the things that I come to understand about the market through my research are helping people actively every day. So, I’m just really happy to be the one doing it!
Tony: Let me tell you, it shows. So, with that, thanks so much, Robin, for joining me here today. It’s great to hear from you, and about all the things that you’re doing to get property managers some context. So thanks again, and until next time.
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