“Area Rents Up, Vacancies Down” can be heard across the land as the new census statistics come out. Vacancies are down and rents are on the rise HOORAY! For a moment the excitement is heard across our industry as the communities that have suffered immensely from the recession see a light at the end of their long journey. Suffice it to say, rents are up and vacancies are probably down, but what have we all sacrificed in the past few years to get us through the dark days. During this time of struggle our industry strengthened a trend that we were hoping to make extinct which were the rent concessions, the lavish giveaways, and in some cases lower rents. Our industry as a whole has opened a door that cannot be easily shut. Due to the fear of high vacancies we have allowed the prospective residents to take control of an industry that was once controlled by quality apartments, great curb appeal, and luxurious amenities and turned it upside down to an industry that thinks it needs to survive by "outgiving" other communities.

We have all seen the enticing ads in the newspapers, Craigslist, or Apartment Guide, “First Month Free Rent” or “Rent today and receive a $100.00 off your rent”. The oversaturation of these deals has changed the way prospective renters think about leasing. Five years ago, it was highly uncommon for a prospect to call an apartment community and ask for something free but today it is the norm. Five years ago, the prospect came in to your office to swoon you so that you would rent to them and now that we have made it so easy for prospective residents to have control we are willing to give them everything just to bring our vacancy percentage down. The consequences of our fears are going to take a larger toll on our industry then many of us could predict.

One of the largest mistakes we have made is to make the last resort the first resort. By saying that I mean lowering rents and adding concessions without first taking a look at why we aren’t leasing. Have you done the proper walk through of your property making sure that you have excellent curb appeal? Is the trash picked up daily? Is your customer service at a quality that deserves renewals? Are maintenance orders being done in a timely manner? Are your apartments comparable if not better than your competition? As a supervisor are you employing people that have the best interest of the property at heart? Are they making wise decision and being proactive to lease apartments? Are they present, not just in the office, but putting forth the best image for your property? If you have answered all of those questions and have positive answers than I can see why we have resorted to lowering rents and giving concession but the question still remains has it been worth it.

One of the most detrimental trends that our industry has done is lower rents to maximize occupancy.  Once you have lowered the gross potential rent for your property it takes years to recuperate such a loss.  Even lowering a rental amount by $30.00 might positively affect your current vacancy rates but in the long run it becomes a financial up-hill battle to recuperate this loss.  Looking at it on a totally economical level by lowering your rents translates to not raising your rents which means in the end you have already taken a large loss for this year.  The average rental increase is around 2.5% annually and on a property that rents for $500.00 a month you are looking at a loss of $12.50 by not implementing the annual increase.  When you add in the concession that you gave away to the new resident of $30.00 you have now accumulated a loss of $42.50 per month or $510.00 annually.  Taken into consideration that you did not give any other rental concession away you still managed to give the resident over one month free of rent on a twelve month lease.  Since we are speaking in terms of money, this is a solitary unit and if you have ten units that you gave the same concession to you are now at a loss of $5100.00 for the year.  This unfortunately is not where the battle ends.

A year has passed and it’s time for renewal and you have already taken a much bigger loss than needed last year.  The market is beginning to balance out and you have more stability to raise rents.  In order for you to bring that apartment back to the same profitability as it would if you never lowered your rents you have now begun the long uphill process that I previously mentioned.  In order for you to bring your community’s gross potential rent back to what it was two years ago you would need to increase this units rent by $30.00 which means giving your current resident a 6% increase in their rental amount.  With the national average being at 2.5% and some cities having limitation on rental increases that cap out below 6% the chances of you seeing this return is bleak along with the actually obtaining the renewal.  This is the just the beginning, what was great two years ago is mediocre today.  The cost of living is continually increasing for example property taxes, utilities, and maintenance supplies are more so even if you collect that additional $30.00 you are still in a profit deficit of $25.00.  Why $25.00?  Because that is the total money you should have collected in increases from last year and this year.  In layman’s terms you are starting out a new year at 11% less rent potential on that one unit all because of an initial loss of $30.00 if you keep their rental amount the same.  Should you do this for all ten apartments you rented this past year with the initial concession in tact you are looking at a revenue loss of $6600.00 dollars this year in addition to the $5100.00 loss from last year.  That $30.00 you initially gave keeps carrying over year after year until you bring the unit(s) back up to their gross potential rent.  Granted, you will eventually raise the rent on that apartment to current market rent for your property but it will be at a higher cost of vacancy and rehab costs once the current resident vacates but you will never receive back the years of loss revenue.

When the economy flounders are survival instincts take over.  We begin rationalizing the positives without seeing the negative effect it will have on us in the long term.  We say in the moment, “one more rented” and look at the glass always half full.  We may say to ourselves, “I am doing the best I can do in this market” to rationalize our misguided steps.  In the end, the headlines are correct.  Our vacancies are down and the rents are up but if you take a closer look at the fine print you will see that most of these headlines are looking only at the past year.  The last year, where a lot of you gave away more than you ever received back and it will take much more than nice headlines to bring back the loss of revenue we gave away to stay afloat.

This industry needs to begin having confidence in ourselves again and do away with concessions, giveaways, and the fear of demanding a fair price for our product.  We need to regain control over the prospective residents and allow our property to shine for what they are and be proud to put our name behind the product we sell.  We need to ask the questions we asked ourselves five years ago and not fall back on a tough market.  We need to continue to give great customer service, awesome curb appeal, and great value for your resident’s money.  When that happens, we will be able to say we have put the dark days behind us and move into a new age when you are the most successful when you have quality merchandise at a valuable price.