The market is changing. Your marketing strategy should too.
During the previous financial crisis, vacancy rates in multi-family homes hit 11.1%. While the Multi-family market is often referred to as a safe investment (because it is), it's not bullet proof. Market shifts, increases in supply, a potential exit of institutional investments in the space, and a decrease in consumer willingness to spend means that we (the multifamily industry) should be prepared for anything as we enter the 2022 recession.
However, with rental prices declining (as of August) and demand flattening, we can count on one thing - it's going to be tougher to fill leases in 2023.
Every market will be different.
We'll see the effects of recession differently market to market. Many geo's with imbalances in supply and demand will be hit harder - for example Las Vegas, Phoenix, and Tampa, where occupancy has been declining and supply continues to increase (as of the time of this writing).
How to best market your properties during a downturn will also vary market to market, and property to property. Keep in mind that if times are tough, a renter may look to consolidate from a 3 bedroom rental to a 2 bedroom rental. Or a 1 bedroom to a studio, or add roommates.
Some renters will opt for a class B property over a class A, or a class C vs B.
This behavior will present different and unique challenges for managers in each position. Class A real estate may struggle - facing a drop in supply - and so managers will need to lean into their value propositions to stand out. However for class B or C properties, there could be opportunity in attracting a higher tier tenancy. The challenge is -- you aren't going to attract a class A tenant with Class C marketing and promotion.
What are the top ways to shore up your defenses in a recession?
Invest in retaining tenants.
Retention is even more important during a recession. Typically, churn is an opportunity to increase rent. In this market, it's an opportunity to forego income. Taking an empathetic approach to management can go a long way towards building equity with your tenant base and maintaining occupancy. Now probably isn't a good time to propose a rent increase or drop a ball on the maintenance side of things. People are your biggest asset - treat them well so they stick around.
Combine this with incentives for longer renewals and get your team behind it.
Retention is about more than fulfilling needs. It’s about winning their hearts and minds.
Going the extra mile with tenants means more than you might think. Providing open communication, and responding quickly to maintenance issues help you to stand out as a good landlord.
Unexpected benefits like community events or surprise gift cards after paying rent on time for a year can reduce churn and even stir up word of mouth about your property to help you establish a brand.
Lastly, fostering good relationships between your team and a tenant is also a great way to prevent churn. You can also invest in tools to check in - for example, sending a simple text saying “How is everything going in the apartment? Any maintenance issues I can address?” or even a “Happy Holidays” text can make a huge difference when a tenant is deciding to renew a lease or live elsewhere.
Stand out to drive more awareness.
After years of bull markets, many (not all) firms have forgotten the importance of building a brand. Major supply shortages have only improved the outcomes of using tools like Zillow or Apartments.com, and to be frank, the importance of having a marketing team has been a lower priority than ever before.
But things are changing. As the market shifts, renters wont be so quick to lease out the first place they can find. Well positioned buildings that have strength in their brand are going to be more resilient than their counterparts. We'll need to lean into our Value Propositions, and if we don't have one, it's time we dig in and find out what it is.
Lean into deals and offers
Money is on everyones mind right now. We're all reading the same headlines. In this market, offers, deals, and flexible / favorable terms can go a long way. These types of offers - tailored to your market, can be the difference that gets your building filled vs your competition.
Conserve cash where possible. Aggressively deploy cash where you can win.
If you're in a market like where there are bigger swings, for example, Reno, Tampa, Phoenix, or Las Vegas, get ready. Most business leaders agree that in a recession, agility is key. Making big cuts where you can, and conserving + deploying cash strategically where there is opportunity is the key to success.
Be ready to diversify your supplier and contractor relationships, some companies will go out of business and you don't want to be left without a marketer (or an electrician) when you are battling market forces.
And of course, when it comes down to marketing and promotion, double down on safe bets and low hanging fruit while cutting back on experimental marketing.
If you are fortunate enough to have excess cash left over to continue investing, a slowdown isn't a bat time to rethink major marketing assets like brand, websites, or more.
Run ads that can be measured: think Google keyword ads and social media.
If you can't measure it, you can't manage it. We recommend finding a marketing partner who can help you break apartment marketing down into a science. At Lease Engine - that's our specialty.
Get creative. Some of our best performing ads on social media have been some of the strangest. No kidding. The social media game is about standing out. Be fun. You want to highlight the main features of your units in ads, but sometimes showcasing amenities, brand, and personality make all the difference.
Google search comes in two flavors… paid, and unpaid. Unpaid Google search is a long term play and can take months to see any ROI, but once it's there, it's defendable and predictable.
Paid Google ads, on the other hand, let you bid on keywords that people search, and pay for clicks, ROI is often seen quickly, but it takes an ongoing investment to keep these types of ads running.
We typically build our sites initially to support PPC (Pay Per Click), but keep the fundamentals strong enough to allow for rankings on search engines down the road through a practice called SEO (Search Engine Optimization). This gives our clients the best of both strategies.
Having a good website is the key to winning on Google search. It also allows you to own your brand, and the traffic you direct with top of funnel promotion. The last thing you want is to spend a bunch of ad money on Google or Instagram so you can send people to Zillow and Apartments.com to browse competitor inventory.
Zillow & Apartments.com
Speaking of… these two heavy hitters shouldn’t be easily forgotten. It’s a no brainer, and most property management tools directly plug in to them for easy set up.
Facebook Marketplace has been a recent winner, and we think it’s here to stay (if you can play by the rules).
Getting set up is similar to posting on Facebook Marketplace as an individual, but you select your business page as the owner of the post during set up.
How does this impact NOI?
High vacancy is a far worse fate than a drop in rental prices.
Sometimes it's the little things that contribute the most to your NOI. High vacancy can eliminate NOI.
Bottom line: The key to preventing unoccupied units is decreasing churn and being proactive in your marketing efforts.
This recession is changing the way the rental industry should approach marketing and promotion, and operations. With these insights, you will be able to keep churn low and build the best multi family housing portfolio in town.