In December 2021, the average national occupancy rate was 96.1% at stabilized properties. Though there were slight variances between asset classes, nearly every community across the United States was at or approaching full occupancy—topping off a record-breaking year for the multifamily industry.
While positive, persistently strong occupancy rates have also created a dilemma for many property management companies. They're not sure what their day-to-day operation should look like when their communities are thriving. As such, it becomes a natural tendency to focus only on improving occupancy at their underperforming apartment communities.
The truth is, there is more opportunity for improvement at their almost full communities than the ones that appear to be struggling in this current market. It can best be articulated by this question: what if you could raise your revenue 5%, while simultaneously decreasing expenses 1-2%?
To make this possible, we'd recommend doing these two things for each one of your apartment communities with strong occupancy right now:
1. Raise Rents At Or Above Market Level
The first step to take when your occupancy is strong is to raise rent. Doing so will obviously generate more revenue and value for your community, your property management company, and any property investors.
Most apartment communities have already taken this reactionary measure, shown by the 15% growth in rent prices in 2021.
If your communities' prices haven't increased yet, there are perhaps two factors holding you back.
One could be just a hesitancy about changing what appears to be working. Wouldn't raising prices endanger above average occupancy rates? While raising rents may turn some prospective residents away, the impact will be minimal on your occupancy because there's currently enough demand for apartments to easily fill the limited inventory of units available at your community.
For example, if your 100-unit apartment community is at 98% occupancy in the month of February—typically the slowest time of year for demand—you would feel safe, right? If at that same moment there were 100 prospective residents seeking to rent an apartment in your immediate market, why would you charge prices noticeably lower than competing properties?
You should not be operating like you're trying to earn 20 new residents. You only need to try and convert two prospective residents interested in living at or near your apartment community to sign a lease—a conversion rate of 2%! That number is more than achievable, which is why there should be no hesitancy about raising rents when occupancy is strong. It is a win for your community!
The other factor preventing you from raising rent could be that your community doesn't have a revenue management software system that automatically makes rent adjustments with precision. Without one, you're more or less guessing at the timing and adjustment of your rent prices, which could lead to setting an increased rate that unintentionally hurts your strong occupancy.
In transparency, we are set to launch our own revenue management software over the next year. One difference with RentVision's Revenue Management solution compared to other systems is that it utilizes our proprietary predictive analytics and automatically adjusts rental rates weekly in a way that property managers and prospective residents can easily understand.
2. Stop Paying For More Leads Than Necessary
A subsequent action every apartment community with strong occupancy should take is reducing their marketing spend.
For the same reasons why apartment communities should feel safe raising rents in a strong market, they should feel safe reducing marketing spend. If you're 98% occupied and there is demand from 100 prospective residents in your area, does it make sense to pay for marketing that could fill 20 units when you only have two available?
This answer seems obvious, yet many apartment communities—regardless of occupancy—rely on static marketing techniques, like Internet Listing Services, that result in them paying for more leads when they're not as necessary.
In a previous blog post, we outlined how to make your apartment marketing spend more efficient by tracking lead-to-lease conversions, cutting listing service contracts, and using Cost Per Minute to measure the success of your various marketing sources.
These steps ensure that apartment marketers are funneling more of their budget towards the best marketing sources. With a more dynamic approach like this, they can confidently dial down their marketing budget when occupancy is strong and still be able to produce the right number of leads at the right time.
The only way to raise revenue by 5% and decrease expenses 1-2% when occupancy is strong—referring to the question from earlier—is to raise rents and make your marketing spend more efficient.
In our ebook How To Manage Your Apartments When Occupancy Is Strong, we discuss a way of manually adjusting rents. Though not as precise as revenue management software, the methodology we mention does give apartment operators a better understanding of when, and by how much, to change rent prices.
We also go into further detail about the steps you can take to start decreasing marketing expenses. You can download the ebook for free by completing the form below.