Here’s a truth: No matter what your community’s retention rate is, turnover is expensive. Generally, replacing a resident will cost at least five times more than it costs to keep them, so having a strong retention program in place makes solid financial sense.
In Q2 2018, only 53.2% of residents who were three to four months out from the end of their lease intended to renew. Further complicating the matter is the catch-22 the industry finds itself in - new leases are harder to obtain as the market slows, yet when it sees growth the new product coming into the market ultimately makes switching properties an easy decision.
Renewals are one of the easiest ways multifamily owners and operators can ensure continued business success, but retaining residents isn’t always that simple. It is cheaper and easier to have a resident renew than find a new renter--- $2,811 cheaper to be exact. If we apply that move-out cost to the NAA’s latest turnover average, that means an average 250-unit property loses $328,887 every year (117 turns X $2,811).
In our competitive market, it is still mission critical to increase or, at least, maintain net operating income (NOI) and asset value – which happens when we increase resident retention. However, it isn’t simply the resident functions, monthly giveaways, and amenities arms race that will help residents feel better about rent increases and renew their leases.
With multifamily facing a turnover rate that consistently has hovered around 50% over the last decade, how can property owners and management teams implement a strong resident retention strategy to boost their bottom line? The answer lies in their ability to better understand resident intent and the responsiveness in acting upon this insight. By creating a culture of responsiveness, a property management team can not only increase resident satisfaction, but can even increase retention despite rent increases or increased housing options in-market.
What can the average property owner or management team (with limited time, resources, and staff) do to nurture a culture of responsiveness and increase property value through increased retention?
Innovation as a Resident Retention Strategy
Increased competition and underuse of brick-and-mortar amenities are spurring the multifamily industry to add experiential features. Commercial real estate watchers have seen the retail sector increasingly offering consumers novel experiences to rise above the competition.
We have reached the pinnacle of the amenity arms race. It’s not enough to offer resort-style pools, state-of-the-art fitness centers, and stunning club rooms and lounges. You have to activate these spaces with programs and services that attract and engage residents.
The trend is fueled by the multiple generational cohorts that are making for intense competition in the multifamily market. Millennials are staying put longer in apartments and condominiums, boomers are downsizing in multifamily settings, and student housing is becoming a more demanding niche.
How can innovation improve resident retention? By better understanding resident demographic and behavioral data.
Many property managers already cater to Millennials, the generation currently making up more than half of all apartment renters. However, successful property owners must look at the needs of all potential residents, including the upcoming generation. Approximately one in every five Americans is a Gen Zer, and they are predicted to reach up to 25 percent of the population over the next several years. Similarly, it can be lucrative to target older Gen Xers and Baby Boomers. Many of these individuals are selling their homes, downsizing, and moving to urban locations close to amenities.
It’s difficult to be responsive if you don’t have the ability to contact your residents on the devices they choose to consume their information, and each one of the aforementioned categories have distinct channels and devices they use to digest information and content – on average eleven pieces of content before making a decision. Furthermore, it’s virtually impossible to be responsive if you don’t have psychographic information. Each one of these categories has specific behavioral actions around their property and community that demonstrate individual tendencies, consumption habits, and preferences.
Every phone call, email, text, and in-app interaction with a resident is an opportunity to demonstrate how much your property knows about them. The true key to resident retention is communication and being able to communicate effectively with residents in a way that leaves them feeling cared for, appreciated, and a valuable part of the community as a whole. With proper communication, residents are left assured that they’re investing their time, money, and energy into a community that cares back.
When’s the last time you audited your residents’ demographic, behavioral, and contact information? More importantly, do you have access to this data and how do you know it’s accurate? Data quality is the first step to building a responsive property culture. Selecting a solution that not only collects a 360-degree, holistic view of your residents, but tracks this data quality for constant improvement is critical for success.
Innovative technology not only enables properties to provide even more avenues of communication to residents, but also creates personalized interactions. In this day and age, nearly every apartment community has a resident portal that offers online work order requests, online rent payments, property manager messaging, community news, and more. However, the next generation of digital savvy property owners are adopting automation tools to engage and incentivize residents 24/7 with little to zero effort from the property managers onsite.
Automation is a term that has been thrown around a lot lately in multifamily. Lyra Intel is taking this idea one step further by adopting a concept of a “humans + machines” workforce. This simply means humans (your property management team) and machine learning AI (our solution) work together to create new workflows, but that is just the beginning. Adding a digital workforce to work alongside your team is the basis for a continuous cycle of success. From increased NOI to attracting more owners to managing more properties, the digital workforce can change multifamily's economics.
We recently launched Smart Retention™, a new feature included within our business intelligence tool. Smart Retention was developed specifically for the multifamily market and applies the digital workforce concept, enabling properties to track renewal intent in real-time by automating the process of resident retention.
Smart Retention offers an intuitive, hands-off approach to resident retention that decreases turnover on average 10%, while saving property teams valuable time and money. Our proprietary system generates automated retention workflows within an easy-to-use dashboard, significantly accelerating the leasing process.
Asset and property managers simply turn on these workflows within the dashboard and the system begins targeting residents at critical intervals leading to lease expiration, beginning at 120 days from expiration. These automated campaigns deliver property-specific and behavioral-based messaging via email and in-app notifications with renewal calls-to-action.
Resident intent data is then immediately available to property teams to start the leasing process with existing residents and forecast renewals and vacancies with greater accuracy. With a 10% increase in retention, our properties are realizing cost savings resulting in an average $89,000 increase in NOI per property annually.
It’s no secret that your residents are your biggest asset, even bigger than your $40+ million property. Because of this, creating a better focus on retention is key. For communities small and large, old and new, urban and suburban, the key to resident retention begins with a solid foundation of communication, and thrives within a culture of responsiveness. By having quality data, making quick, thoughtful responses a priority, along with embracing technology as a partner, your residents will continue to experience the value of staying in the home they have created in your community.