What is Performance Benchmarking and Why Does Your Score Matter?
Imagine looking out your windshield while driving through the apartment industry landscape, searching for actionable intelligence that maximizes investment yields and asset returns. The countryside is full of dashboards, graphs, and data that would presumably help you formulate a strategy to attract new renters and maintain existing residents.
The unfortunate reality is that data currently available from credible industry market research firms is more akin to looking through half of your windshield, and it’s cloudy. This data, while extremely useful in certain contexts, reveals only a sticker price on the new lease side for rent growth, lease rates and occupancies. As a result, the numbers only scratch the surface and do not provide significant visibility into your score.
There’s even less transparency for information on lease renewals—which can comprise about half of the total rent roll.
At the granular level (i.e., the neighborhoods within markets), there is a wealth of information based on actual, real-time lease transaction data that apartment operators can leverage to better understand their score. This lease transaction data offers insights into what your neighbors are achieving at a bedroom level, and how your operation compares to the performance of similar properties across numerous metrics such as renewal conversion, average vacant days, lease trade out, effective rent roll per square foot for new leases and renewals, and others.
Performance benchmarking, a capability within the RealPage business intelligence platform, lifts the fog from the windshield and provides clarity about the markets in which your properties operate.
So, how does performance benchmarking work and why is it relevant?
First, traditional market research really is just a sticker price, showing only what’s happening on the new lease side with no perspective on renewals. It lacks the quality and breadth of data needed to provide a holistic picture of what’s happening around an asset, considering similarities in vintage, size and building class, and it is not updated nightly.
Second, performance goals typically used today can be misleading. Attaining year-over-year rent growth of 4 percent may sound good, but what if your lease prices are actually 2 percent below what your neighbors are charging for similar properties? You’re leaving money on the table.
Performance benchmarking compares your property using a number of metrics to determine how well it stacks up against the competition. For instance, your Class B property can be compared to similar Class B properties located two miles away down to bedroom size, square footage, build year and other factors. Importantly, these comparisons are based on actual lease transaction data, updated nightly, offering you a clear view of true market performance, down to the new lease or renewal price per square foot.
Performance benchmarking is particularly helpful when markets change, as expected in 2017. For example, the projected abundance of new units coming on line this year could affect rent growth and occupancy in some Class A markets. There, apartment operators need to know exactly where they stand.
Everybody wants to know what their competition is doing. That’s especially true for property management companies. Those who achieve victory will successfully achieve their budgeting goals, realizing comparable rates to market and making sound business decisions that drive maximum performance. And that’s only achievable by having a clear vision of the apartment landscape—through performance benchmarking.
Learn more on performance benchmarking at RealWorld, July 16-18, 2017, in Las Vegas