Food prices are high, the Fed keeps raising benchmark interest rates, and inflation, although lower, remains above the Fed’s 2% target. Many indicators are pointing toward a recession on the horizon. As a result, industries have been in cost-cutting mode to prepare for the possibility of more difficult times ahead.
Through it all, the multifamily industry has held its own. It has survived five consecutive recessions over the last forty years and persevered despite COVID-19, a pandemic that crippled sectors once thought to be recession-proof. What’s behind the resilience of the multifamily industry, and what will keep it going through this current recession?
Let’s look at how multifamily owners and operators withstand these economic downturns.
Recession Drives the Adoption of Innovation
What does the future hold for the multifamily industry with a potential recession looming? For multifamily property owners and operators, it looks brighter than you think. Cost-cutting is inevitable, but recessions present an opportunity to not only minimize losses, but to also find new ways of attracting tenants.
After two years of record-breaking growth, rents have started to level off. As a result, owners are seeking creative solutions to recover lost net operating income. One way to accomplish this is by investing in smart property technology.
Because of the pandemic, many property owners have already started modernizing their properties with smart tech, and with good reason. Smart tech is a differentiator for property owners trying to gain operational efficiencies while attracting and retaining tenants.
From an operational standpoint, smart tech automates tasks that would traditionally be handled by leasing agents, maintenance staff, etc. For example, by automating the prospecting process, you won’t have to hire as many leasing agents to maintain your conversion rate. Smart tech also allows you to perform predictive maintenance — where you identify and fix potential utility issues before they happen. This helps you avoid paying excessive repair costs, extend the lifespan of your assets, reduce third-party maintenance calls, and hire less on-site repair staff to handle resident issues. Finally, smart thermostats can auto-adjust to curb unnecessary energy usage. According to a white paper published by Dwelo and cited by Latch, this could result in savings of 43-58% across vacant units.
Smart technology can help convince residents to renew their leases, as indicated, by a recent study of over 3,000 properties. The study found that installing smart technology had a positive impact on tenant retention, with 56% of respondents reporting that resident retention was an effect of installing smart home devices. Additionally, it is worth noting that retaining tenants can often be more cost-efficient than acquiring new ones.
Smart Tech Brings Stability During Volatility
Inflation has always been a driving force behind market volatility, but events in the past few years also played a role in shaping the current market’s predicament. The shutdown from the COVID pandemic hurt the economy and halted supply chains. This led to the Fed lowering interest rates in an effort to increase spending. The stimulus payments that followed allowed renters to stay in their units even though rents had climbed. But even with this economic stimulus, supply chains still struggled, causing prices to rise.
Through all of this, investors have considered multifamily properties a preferred asset class for their portfolios. The industry’s stability during the last five recessions is a track record that both investors and owners can trust. Multifamily owners can survive a recession by gaining greater control over property performance using smart technology. The immediate and long-term impact smart tech has on resident retention, operational efficiency, and income generation should help offset at least some of the adverse effects of rent stagnation. It reduces overhead costs and ultimately yields a higher return on investment.
More than half of property managers consider operational efficiency one of their greatest professional challenges, according to a survey conducted by the National Apartment Association. 74% of owners also said that human resources and staffing are optimization challenges they face. Smart tech can streamline the day-to-day duties of on-site employees by automating tedious processes and alerting staff of any potential problems before it’s too late. This can help reduce the need for specific roles and decrease payroll.
Turning Volatility into Opportunity
When considering whether to invest in property technology, there are several factors to take into consideration, starting with demand. First, residents have expressed a clear demand for smart technology in their apartments. In fact, a recent study by Rent.com stated 40% of apartment residents want smart locks, 44% want smart thermostats, and 41% want smart lighting — by far the three most popular devices among renters. However, 49% of these residents don’t own a single smart device. Owners who satisfy renters by offering preferred smart devices will increase retention and decrease turnover, which will help stabilize their revenue as the economy is in flux.
ROI is also crucial to consider when investing in anything. Take the cost of the implementation you’re about to undertake and look at the effect you want it to have. Will adding additional security or convenience measures with prop tech increase the occupancy of the property? Will it reduce staffing needs? And do one, some, or all of these factors justify the cost of the implementation?
When investing in prop tech, scalability is an important factor as well. Property tech investments ideally are long-term commitments. The vendor you choose should be willing to adapt as your business grows and your needs change, whether that be regarding pricing, updates (both software and hardware), or maintenance.
Practicality Is the Key
While investing in a tennis court or a community garden is cool and attractive, many modern renters are often far more enticed by practical amenities. Practicality is why smart tech checks a lot of boxes for modern renters. Owners who implement smart property tech attract new tenants, retain current ones, reduce labor costs, and manage their assets with ease and efficiency. Smart tech helps build resilience in the midst of strong economic headwinds and serves as a go-to tool when multifamily owners are looking to cut costs. With it, owners won’t just keep their properties afloat — they’ll thrive.
Arize partners with Openpath to introduce advanced common area access control to multifamily communities across the country.
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