multifamily

outlook 2023

Apartments are Essential
  • Rental demand should rebound ahead of for-sale demand.
  • U.S. apartment occupancy remains high, but dips back to pre-COVID levels.
apartments stay full

- cashflow even in down times

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U.S. Market-Rate Apartment Occupancy

30-year low for vacancy is just 8% (2009);

YoY rent change bottomed at - 5.5% (2009)

T-12 Market-Rate New Apartment Completions

New apartment supply scheduled to

surge nationally in 2024

“Renter Lifespan”
is extending

The renter journey is lengthening, meaning
renters are spending more time researching,
before they call multifamily operators.

Specifically, in the past year,
renters are researching 18%
longer and are taking
nearly 40 steps

- this means clicks and views across marketing
sources - before making that first phone call.

Factors extending the renter lifespan

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6.6 million renters are
ages 25-34; they are
more favorable to
renting vs buying.
With mortgage interest
rates around 6 percent,
American homebuyers have
24% less spending power
than they did a year ago.
Home inventory remains
too low to meet demand,
dropping at 0.8%,
meanwhile home prices
are continuing to rise -
the median sale price is
now $379,100.
Home prices are up nearly
2x more than apartment
rents since COVID hit in
March 2020 (~40% to
~20%) despite very
similar supply/demand
dynamics.
Increased quality/
desirability of apartments/
locations built in last 2
decades.
Return of Baby Boomers
into the rental market.
Private investors are
buying available single
family home stock.
The focus on
protecting the front
and back doors
Guarding against identity fraud

With the FTC showing a 120% rise in identity
fraud from 2019 to 2022, and the overall shift
to more digital interactions, Identity
Verification is of growing importance.

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Apartment renters continue to renew leases much more than normal, but not at peak levels seen last year.

Share of U.S. market rate apartment renters with expiring leases signing renewals in q3 by year
U.S. Y.O.Y. change in leasing
traffic (guest cards created)

Leasing Traffic Dropped Faster than Expected in 2022

Focus on retention
given lesser new
lease demand

Renter renewal rates are at approximately 57 percent – an all-time high. And these residents are renewing at about 10 percent more rent.

so why has
demand
slowed?

If the ‘wait and see’ scenario plays out and
the job market remains strong, we should
see pent-up demand unlocked ahead of the
Spring 2023 leasing season.

“Wait and see mode”

Inflation - contributing to weakened
consumer confidence & heightened
uncertainty. “Wait and see mode.”

Household slowdown

Likely seeing a slowdown in household
formation (the big driver in 2021’s demand).

Pandemic & remote work

Pandemic (and remote work) likely
accelerated future demand into 2021,
‘stealing’ from 2022.

Shift in focus to driving efficiency without sacrificing performance

Apartment operating expenses climb more than
2x above pre-COVID norms.

Pre-covid average 3.5% ytd
2022 Avg: 7.6%

6 of 7 big areas where we're seeing outside expense growth
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    • how to combat these?

    Find ways to empower your best people with high touch, high value tasks; automate/centralize the rest.

    Utilizing A.I. Voice

    More than half of all prospects reach out by phone. But on average, stretched-thin teams miss 40% of those calls. Utilize AI Voice to create a better leasing experience for prospects and significantly lighten the load for your teams.

    Utilizing Marking Technology

    Marking Technology can save 20 minutes of work per prospect per day, totaling 40 hours per month or one whole work week.

    Use AI & smart technology as an opportunity for savings
    Go green to make green
    with smart technology
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    Sustainability initiatives
    today not only help the
    environment, but also
    help in reducing
    operational expenses

    Water Management can
    reduce portfolio-wide
    water consumption by as
    much as 20%.
    Waste Management can
    reduce property owner
    costs by more than
    $100 per unit.

    Save on Advertising
    Spend with A.I. from
    Smart AdTech

    Leverage Artificial
    Intelligence     to score calls,
    and automatically spend ad
    dollars, daily, on the best
    performing campaigns
    (leveraging advanced multi-
    touch attribution modeling).
    Call Scoring delivers
    more leads, better leads,
    and at a 68% lower cost
    per qualified lead.
    Low consumer confidence and weak household formation tells us Americans are in a ‘wait and see’ mode
    Renters in subsidized Affordable Housing are more likely to struggle paying rent
    Sun Belt remains magnet for in-migration AND when compared to coastal gateway markets
    Y.O.Y. Change in Same-Store
    Effective Asking Rents
    Change in Apartment Sales
    Volumes 2019 vs. 2021

    (in $billions)

    Significantly more affordable, less vulnerable to policy risk, plus lesser historical rent volatility.

    Strong demand despite elevated supply pressure.

    Not Just People: Substantial investment volume flowing into Sun Belt as investors look for alternatives to Gateway investment.

    No “late recovery premium” for Gateway markets – all markets showing similar pace of moderation in second half of 2022.

    Class B to A is
    well positioned
    for 2023

    Class B - Insulated

    Class B is more insulated from supply competition than Class A (which could see volatility in 2023-2024) and more insulated from affordability concerns than Class C.

    Suited to weather slowdown

    In 2023 we should see new lease volume/new traffic slow further, Class B likely better suited to weather slowdown as Class A properties compete for smaller pool of highest-income renters.

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    good news!

    renter incomes growing at healthy pace across all product classes in 2022

    Build-to-rent (BTR)
    communities
    emerging as
    housings next
    great niche

    Household formations are a key measure of
    housing demand.

    Over the next 5 years, we
    anticipate demand for
    approximately 7.5 million
    additional housing units

    10% above the national average annual growth observed
    over the last 10 years.

    1.5x higher new
    sign leases

    Approximately 810,000 new households are expected to sign leases for single-family rentals, 1.5 times higher than the number of new apartment rentals.

    Fastest-growing
    segment

    The single-family rental industry has been the fastest-growing segment of the housing market since 2006.

    56% rentals
    growth

    The total number of Single-family rentals on the market today has grown 56% since 2007, compared with 20% for multifamily rentals during that same period.

    Single-family rentals (including build-for-rent) total more than 15mm units in the U.S. Only about 2% are “institutionally owned” per NRHC, suggestions:

    • Continued upside for consolidation.
    • Vast majority of the market remains small
      and medium-sized business.

    Traditional
    Investor Entrants

    Many (if not most) new SFR/BTR entrants
    are traditionally apartment investors.

    More Online Traffic

    Single-family rentals (SFRs) are
    getting 30% more online traffic.

    Trend Investing

    Operators investing in ‘BTRs’ to
    capitalize on trend.

    Sources