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Another research banger from Jay Parsons – Click here to visit Jay’s site or here to view the full story.

Jay Parsons

Apartment supply is at the highest levels in 50 years, vacancy is up at all price points, and renewal lease rates (while cooling significantly) are still climbing about 4%. So… in that environment, you’d expect higher turnover. AND YET … the opposite is happening!

This, to me, is one of the bigger surprise turns of the apartment market in 2024. Apartment retention rates are steadily climbing upward. The trailing-12 month rate as of August 2024 (measuring the share of expiring leases getting renewed) jumped to a 16-month high of 53.8% — and higher than ANY period pre-2020.

This is a sharp reversal from 2023. Back then, retention rates were declining and appeared to be trending back toward the low 50% range. That seemed inevitable after retention shot sky-high during the pandemic in 2020 and again in the low-vacancy, peak inflation era of 2021-22.

For a lot of folks looking at this, I’m guessing the instant-reflect reaction is: “This is because no one is buying houses!” And, yes, that’s definitely a real factor. But I don’t think it’s the only reason. Remember: The vast majority of move-outs are due to relocation of some type, not home purchase. And for those wanting to buy a house but unable to, some may choose to renew their leases while others may end up renting a single-family house or a BTR unit — especially if they’re starting a family.

Also, remember that not everything else is equal. Meaning: High mortgage rates are not the only factor pushing up retention.

I wouldn’t entirely dismiss an industry-wide laser focus on “heads in beds” strategies. I’ve been writing about that strategy since the supply spike started more than a year ago, and honestly, I was a bit skeptical. I viewed it as a way to limit the fall-out, but thought surely we’d still see falling retention rates as renters sought out better deals.

But “heads in beds” is largely working out — even with average renewal rent trade-out still at (a more normalized) 4%. That shows us a couple things:

1) Intense focus on customer service pays off. This includes conveniences of resident service tech plus high-touch service like speedy resolution to maintenance issues.

2) A large number of renters appear to value convenience of staying put (if happy there) over chasing moderately better deals and gimmicky concessions. Now to be clear: Some renters are indeed moving up as new supply comes online, but they’re generally paying a bit more. I’ve written about this “filtering” impact playing out. But there appear to be fewer lateral-or-downward moves of renters chasing better deals. Another sign that renters in market-rate apartments are in stronger financial shape than widely reported.

What other factors could be driving up retention rates?

#apartments #multifamily #propertymanagement