Using Revenue Management to Strike a Balance Between Raising Rents and Resident Retention
The healthy occupancies anticipated for 2012 point to another year of rent growth that basically mirrors 2011’s robust upturn. But actual results will be influenced by how apartment operators handle a couple of key challenges on the way.
First, the fact that 2012 is a presidential election year guarantees a deafening roar of folks screaming that the economy is near total collapse and that we must change direction to avoid heading off the edge of a cliff. Operators who cover their ears and set rents based on the financial results they’re seeing at their apartment properties should boost pricing substantially. On the other hand, those who let emotion play a big part in their decisions could leave money on the table, particularly when it comes to raising rents for residents with leases coming up for renewal.
Second, even the best property managers out there will probably have to deal with resident churn above the unusually low levels they’ve gotten used to over the past two or three years. In most locales, 2012 will be the second or third year that rents have gone up substantially at the same time that incomes haven’t moved much, if at all. While the ratio of rent to income remains well within historical norms in the big picture, select households are going to feel that they’ve reached their spending limits. Some will choose to downgrade product quality, which suggests favorable prospects for occupancy growth in the middle-market segment. Others will opt for smaller floor plans, or we could see a minor upturn in roommate households. An increase in the loss of renters to purchase could impact resident churn figures in the country’s strongest local economies.
One thing is certain, YieldStar clients are positioned to continue achieving the best results. Revenue management is designed to help operators avoid emotional trappings and overreaction to factors that aren’t impeding actual performance. And while YieldStar controls exposure, it continues pushing the envelope on rents, so you can rest assured you are not leaving money on the table.
During the recession, some of your renters were able to move up in product quality, but can they afford to stay? The industry has been operating at higher retention rates for the last two years. Are you ready for a little more turnover? Will you let some renters go and continue pushing the envelope on rents?