As we enter the 9th week of the public health and the ensuing economic crises, it’s probably a good time to take stock. It’s been a bit of a roller coaster, and the ride is clearly not done yet.
The first three weeks starting March 16 were brutal. We saw leasing drop by more than 50% and more like 90% in markets like New York, the San Francisco Bay area and the Greater Los Angeles Metro area. These numbers appear consistent with data that RealPage and Yardi have released.
Since then, numbers have been remarkably good: leasing has risen every week since then and is now on par nationally with last year. The three markets above appear to still be off 20-25%, but some other markets are showing YOY increases [we should note that Realpage is reporting a roughly 6% decline in rent, so leasing activity is coming at a price]. Rent collection was off roughly 4 points in April, but NMHC has reported through May 6 that May collections are trending 2 points better than April.
A-class properties are leading on rent collection while trailing on leasing with C-class communities doing the exact opposite. All of this has taken place through the seven worst weeks of unemployment claims in history, with over 33 million total claims filed to date.
The story so far
At D2 Demand, we’re not surprised that rent collections have fared better than feared. Hourly workers have been disproportionately affected, and the $600 per week federal unemployment supplement means most of these people are making more money unemployed than they did while working. While some professional workers are affected, most of them have at least some short-term buffer to continue paying for housing.
The first 3-4 weeks of this period was pure crisis management: setting up work-from-home systems, communicating with residents and associates, embracing virtual touring and leasing, shutting down common areas and figuring out a host of service and other logistics. What came next was a period best described as ‘finding a rhythm.” It’s not really a “new normal” (despite how overused that term is), but more of a “no longer on crisis management calls 12 hours a day, so I can catch my breath and think for a moment” kind of thing.
Last week seems to have marked a transition to planning for partial openings: some partial openings of amenities, maybe some in-person touring with special protocols, looking at service request and deferred maintenance backlogs, etc.
What we can expect in the short-term
We don’t pretend to have a crystal ball, but here are a few thoughts for the next few weeks (we emphasize the shortness of term in these forecasts):
- In the short term, leasing should continue to grow as seasonal factors give us a continued tailwind, pent-up demand continues to raise the tide and state-by-state re-openings contribute to an increasing willingness to move
- Unemployment claims will likely increase as a) many people who have lost their job still have not been able to file and b) additional “knock-on” effects will drive further layoffs, especially as the eight-week requirement for forgiveness on the first round of Payroll Protection Plan loans expire
- Claims numbers should go down; however, last week’s number was still almost five times the record prior to this crisis
That said, there are factors that make it hard to predict anything past early summer:
- The federal unemployment supplement currently lasts only four months
- Unemployment will continue to grow
- Seasonality favors us only for another roughly three months
- We have yet to feel the full impact of the shock to the economy
- It’s yet unclear whether the economic re-openings will start a path to continued improvement or kick off a second (possibly worse) round of COVID-19 illnesses, hospitalizations and deaths
What should we do?
Here are our high-level ideas about what that means to multifamily operators:
- The health and safety of residents, prospects and associates still need to come first. We would advise caution in any re-openings of facilities and leasing processes as no lease is worth the life of a prospect, resident or associate
- Now that leasing is happening, lessons from the past two recessions should apply
- In many markets, it makes sense to begin to introduce at least some renewal increases; in other markets, it makes sense to continue flat renewal offers and negotiate from there as needed
- Vigilance on the numbers is critical as activity is likely to remain volatile for the foreseeable future
- Pricing is one of the most critical functions to outperform competitors through this down cycle. If your system isn’t set up correctly, your amenity structure and pricing is not spot-on, or you don’t have the appropriate policies and procedures in place on hold times and longstanding vacant units, then you will underperform
- As re-opening plans start, it’s time to think beyond just the next couple of weeks. How will you continue to push online leasing, virtual tours, auto-ACH, etc.? Is your pricing software system properly configured as we move through the various phases of this recession? Does your team have the knowledge and experience to pilot you through those phases? Past recessions have proven that those companies who maintain activities aimed at the long term strongly outperform those that freeze everything once the recovery starts!
What do you see happening in the next few weeks? Months? We’d love to hear from you!