Multifamily’s Summer Recovery is Dialing Back a Bit Lately

Concessions, slightly sagging renewal rents and on-time rent payments are a few of the concerns mixed within a relatively upbeat report from the MRI Software Market Insights, “Reflecting on a summer of recovery for Multifamily,” which examines data and trends through August 2021.

While concession volumes have settled down, the average concession value has remained high, with August showing a slight retreat toward baseline norms.

In addition to year-over-year comparisons, this report also includes a “comparison to baseline” for many of our metrics, looking at comparisons to the baseline performance in 2019. (The “comparison to baseline” looks at comparisons to the baseline performance in 2019.)

Operators have been achieving strong rent growth in new leases, however 12-month renewals remain roughly 5% below prior year and baseline.

The report showed a significant drop in self-guided tours. After averaging 9% from November through May, the average was 2% across the summer with August coming in at 1%. The volumes have been picked up by agent-guided tours.

On-Time Rent Payment Underperforms

Meanwhile, on-time payment performance, as reported in the National Multifamily Housing Council (NMHC)’s Rent Payment Tracker, also continues to erode, down nearly 2% as compared to the prior year. (Some have suggested that the hurricane situation in much of the eastern part of the country caused delays in some rent payments.)

Delinquency continues to be an area of concern as the impact of eviction moratoria has yet to work through the system. At the moment, slightly more than half of delinquent accounts are only behind by one or two months’ rent, amounts that are not insurmountable. Unfortunately, roughly 8.5% of delinquent accounts are more than six months behind.

Trends in technology use at the operations level showed that online applications are up 26% year-over-year and more than double the baseline volume.

Online payments are up 15% over the prior year and have settled into a 70% ACH, 30% credit card mix. Online service request submittal is up 13% over the prior year and 84% as compared to baseline.

Smooth Sailing Turning Rough

The industry has had a strong summer, which is a great way to finish the year, “but it is unlikely that we will have smooth sailing into the new year,” the report read. A number of risk factors remain that will continue to drive various levels of exposure:

• Vaccinations and Variants – no need to go into detail here, we all know the state of play.
• Eviction Moratoria – now largely lifted, there is still a way to go to work through the eviction processes and fully return to an unencumbered steady state.
• Hybrid and Remote Work – ongoing work-from-home situations are allowing workers the freedom to separate where they live from where they work, and hybrid models are still emerging as organizations seek to balance a return to the office with the demands of their workforces.
• Populations and Politics – Millennials are seeking more space and turning to single family rentals, while changes in laws may alter migration patterns to less restrictive areas.
• Expense pressures – while not documented in our metrics, it is clear that labor, materials, tax and other expenses will continue to apply pressure to bottom lines. Even with strong rent growth, the off-setting impact of these expenses may drive results below plan or cause unfortunate deferrals into future years

Some Positive Data Trends

Nonetheless, there are these strength in the numbers to report:

• Starting at the top of the funnel, traffic was up 18% year over year and up 38% over baseline.
• Subsequently, move-in volumes rose 16% year over year and fell only 4% as compared to baseline.
• Renewal volumes were up 5% year over year and only down 7% from baseline.
• Meanwhile month-to-month leases were up 14% year over year while reducing by 24% compared to baseline.
• Move outs, on the other hand, continued to lag compared to the prior year, off by 13%. Compared to the baseline, they were off 30%, contributing to continued tightening of supply.

Tight supply, strong traffic and seasonal trends all lead to strength in pricing. Looking at August specifically, the 12-month terms achieved 11% growth over the prior year, and more importantly, 7% over baseline, fully recovering from August 2020’s 4% decline as compared to prior year.