Apartment Landlords Cut Expenses, Use Tech to Offset Rent Declines

Apartment rent growth has been underwhelming lately and that is expected to continue this year. Most analysts such as Orphe Divounguy, Zillow’s senior economist, are calling for about 2% annual rent growth in 2024.

Operators, in turn, are focusing this year on reducing expenses by reducing expenses and operating more efficiently through technology.

Speaking at the National Multifamily Housing Council’s Apartment Strategies Conference a few weeks ago in San Diego, Angela Biggs, Managing Director, Investment, Grosvenor, said assets are seeing a 20% decline in asset value so when that happens the NOI has to go up by 4% or 5% to make up for it.

Doing so can be tough, Nikita Rao, Managing Director, Portfolio Manager, Housing, Americas, Nuveen Real Estate, said.

“The insurance markets are rising rapidly year-over-year and labor is still pretty expensive,” she said. “Appliances and construction materials prices are still expensive.”

Karen Key, Division President, Southeast, Asset Living, is one of many who are leaning on the centralization model for back-office administrative tasks, which has led to greater onsite employee productivity and customer satisfaction.

Having things such as renewals, payables and other tasks handled by a centralized office staff member is ensuring faster responses. Key said technology helps her company to be more efficient.

“Consumers today want to get a response in 45 seconds, or they will move on from you,” she said. “They are more loyal to speed of service than brands.”

Biggs said using “digital twin” technology gives her teams a better look at how communities are operating and makes it easier to determine where adjustments can be made that lead to more efficiency and savings such as preventive maintenance.

Kristy Simonette, SVP, Strategic Services, Camden, said her teams are relying more on generative artificial intelligence such as ChatGPT to make an impact.

“If you haven’t seen the online video tutorial about Microsoft’s co-pilot generative AI tool you are missing something. It’s a difference-maker for our online teams.”

In the meantime, operators will wait and see when rent growth can return. For now, RealPage Chief Economist, Jay Parsons, said he’s seeing cuts in base rates in lease-ups – something that doesn’t often happen – and rents are not just falling because of concessions.

“Owners are not able to refinance until they stabilize, so they have to ask themselves how quickly they want to stabilize based on the rents they are setting,” Parsons said. “And with all of these lease-ups, there is more competition for renters.”