How to Adapt to Lower Rents and Rising Vacancies

2023 was another great year for landlords. Rent prices were stable and in many regions rose.

Of late however, the trending news story in the property management and real estate space is falling rent prices.

And since your operations costs remain high and your own mortgage refinancing dates are still off in the future, your 2024 revenue outlook could give you some sleepless nights. In this post, we discuss a tenant-retention strategy to help you protect your cash flow.

Rents and Revenues Trending Downward

The 7 trending factors listed below gang up on landlords as you deal with your own financing, operations, and efficiency challenges. If you’re paying attention to the trends, you’ll be more motivated to build a rent revenue protection strategy.  In some cities and states, rent prices dropped for the first time in two years, so it’s something to respond to.

It’s All About the FED

The recent US FED rate announcement hinted at rate cuts in 2024. Despite some skepticism among economists, it was enough to boost the stock market and raise builder sentiment this month. Homebuilder sentiment rose 3 points sparked by renewed interest from buyers who might have the wherewithal to buy next year. How many of your current tenants aim to buy a home vs rent one?

Housing starts jumped 14.8% in November while housing completions rose 5% vs October. Reports show Americans are back out shopping for homes again. Of course it may not be until after the first rate cut that a flood of homes will come onto the market.

Factors Dampening your 2024 Rent Revenue Outlook:

• a slowing economy raises unemployment and reduces tenant incomes (employers getting the upper hand)
• your own refinancing challenge in 2024/2025
• demand will shift further to more affordable rentals
• more renters leaving the rental market to become homeowners (2024 sales forecasts are up)
• more new multifamily construction releases and building in 2024
• consumer expectations of lower rent prices and other rental options with better amenities
• tenants leaving for less expensive rentals, cities or states

Best Ways to Get Asking Rents and Keeping Current Tenants

A bird in hand is better than hunting one in the bush

Big picture strategy then might begin with doing more to retain your current tenants. And to launch that, you to formulate your new value proposition for 2024, and communicate it to your tenants while avoiding any reference to service cuts.

Even though tenants are looking at dollars saved, for them, relocating means risk and more cost.  And it’s an emotional decision. There are ways to make them feel and appreciate the value of their rental, so the dollar pressure fades. And if you do offer a small drop in rent price or a discount, it might be enough to make them feel they’ve saved enough and should stay put.

In the value = rent price equation, when rent falls, perceived value must rise, otherwise you’re going to lose them. What if you take some time to formulate a new value proposition to appeal to your unique group of renters?

6 innovative Ways to Fend off Revenue and Tenant Losses

1. Offer Value-Added Services or Amenities: Enhancing the value of the property through additional services or amenities can justify maintaining current rent levels. Give a price break on yearly-based subscriptions on home security, high-speed internet, spa center, connected home equipment, parking, and storage, thus leaving you open for increased revenues later in 2024/2025.
2. Focus on Tenant Retention: Consider renewing leases with flexible lease terms such as shorter lease terms or month-to-month rentals, or longer leases with a discount. If all they want is the feeling that they’ve got options, you’ve solved their anxiety. And you might attract new renters who are willing to pay a premium for flexibility, thus helping to maintain current rent levels.
3. Rental Unit Improvements: New appliances, lawn mowers, gardening tools, bathroom/kitchen fixtures, noise-reducing windows, yard landscaping with new sod, or adding a backyard deck are much-appreciated value-added benefits. Any renter would be reluctant to give up a deck and larger windows which make the unit more enjoyable.
4. Implement Energy-Efficient Upgrades: Making the property more energy-efficient can be a selling point for some tenants as it implies lower utility bills. Consider upgrades such as energy-efficient windows, modern hot water heaters, new LED lighting, or improved insulation can lower utility bills for tenants, making the overall cost of living in the unit more attractive. These changes get renters in a positive mindset, which helps you get your overall value proposition across.
5. Market Your Rental Units Better: Remind rental prospects and tenants about the convenience, safety and quiet, and amenities they are enjoying so they feel the value more personally. Communicate in a friendly, helpful and relaxing fashion and show appreciation, which eases them away from a critical, analytical mindset. Once rent price comparisons begin, no landlord is going to benefit.
6. Understand and Respond to Market Dynamics: Keep up on local market trends to understand demand factors in your communities. This is what renters are seeking and what’s available, so working on building those desired lifestyle benefits can help you retain them as your tenants.

The Key to Revenue Retention

With tenants expecting lower rents, maintaining your current revenue flows might come down to marketing and communications.

It’s all about perceived value and emotions which you can manage via improved, purposeful communications with your current tenants. You’re countering the collective expectations they get from friends and the news media.  Counter that with your new preventative price protection strategy and you’ll suffer fewer losses in 2024.

Act Now—Optimize Costs with ManageCasa™

This is not just an opportunity; it’s a call to action. Explore how ManageCasa™ can be your best tenant retention tool!

Contact our sales team at 1-415-800-1245 to learn more about migrating to a modern property management software platform and transforming your property management business to what it needs to become.

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