Students can provide a wonderfully reliable demand stream year after year. Knowing that a large pool of prospects will be looking to move in by a particular date is more data certainty than we have most of the time…what could possible go wrong?
A lot, actually. For as certain as students start school in the fall, management will panic mid-summer. What if school is about to start and you’re not full? Will you lower prices/add a special at the last minute to attract what remaining demand there is? If that happens, you can bet word will get out to the students who leased earlier at the higher price faster than you can say Snapchat…or however they are communicating these days.
Worse yet is your situation if you didn’t lease up in time. You’re stuck with a slew of vacant apartments, a steeply declining seasonal curve (autumn is the season everything starts to die…including your traffic), and a marketing/sales conundrum around how to convince conventional demand that they would enjoy residing in a property filled with students. Your rents don’t have a chance…and neither do your revenue goals for the year.
Students are a high stakes game compared to normal demand and it can certainly be tempting to underprice in order to safely secure occupancy early on. However, operators that are willing to be a bit more disciplined and not give away the farm too early will enjoy a higher revenue payoff. (Note: most Mom and Pop shops are not willing to take this risk, leaving even less competition on the table. A revenue manager’s dream!)
So you want to ante up and get a bigger piece of the pie, but how do you convince management that you’re not just a gambling addict in a revenue manager’s clothes? There is a way you can track performance and show senior executives that there is no need to panic and demand will materialize as it always does, as well as easily spot trends that deviate from years past. But how? By borrowing a page from the airline’s playbook.
Airlines have a term called spoilage. Spoilage is the empty seats when the plane takes off. The revenue opportunity to sell those seats is gone forever; it’s spoiled like a rotten banana. Apartments are a little different, as vacant units generally don’t go bad and can still be leased tomorrow even if we’ve missed the opportunity to do today.
As you’re probably already thinking, one exception to this general rule is the student market. These situations tend to act much more like an airline’s flight; once school has started, the opportunity to lease those units is all but lost (at least at any normal rate).
Airlines need to monitor their bookings on hundreds of flights, and they do so by looking at their monthly Booking Curves. This is a report that shows the total monthly bookings for a particular market. While different dates or days of the week may have variable demand, the total bookings for the month follow a pattern that tends to repeat itself year after year. The total number can certainly change based on market capacity, the shape is startlingly similar each year.
As a former airline revenue manager, this report was a remarkable tool to gauge performance early enough to where we could do something about it. I knew that if I crossed under the booking line from last year, I better be trying to slow bookings down purposely (sold out a few flights too early last year) or it was time to lower prices and stimulate some demand.
When managing student-driven properties, you can plot out leasing in a similar fashion. This will give you an idea of your cumulative bookings (I prefer to graph this per week rather than month) and if you have more than a year’s worth of data, you should see a pattern emerge. Assuming your retention doesn’t change greatly from prior years, this can be a helpful tool to shine some visibility on where we should expect to be vs. where we are, and give management a lens into the demand still to come.
Charting out the average rent alongside this can help you maintain a steady increase in rent with slight adjustments upward the closer you get to capacity. The best part is that you will not train students to wait until the last minute to hunt for specials; rather, the students will learn to secure something earlier in order to get the best pricing. That is, assuming you can train students to do anything. :)