In late 2008, as the economy was quickly turning sour, the battle cry throughout the apartment business was to “keep heads in beds” at all costs. Now, a year-and-a-half later, it looks as though the industry was successful in doing just that.
The recession made apartment companies take a long hard look at their own residents and how to keep them happy. And they’ve discovered they can save a lot of money by reducing vacancies, marketing expenditures, and unit turn costs. Plus, in an environment of downward pressure on rents, apartment owners could actually get more in rent from existing residents than from people coming in off the streets. “It’s big, big dollars to increase retention,” says Dave Woodward, managing partner and CEO of Greenwood Village, Colo.-based Laramar Group.
In their first-quarter reports, a parade of REITs highlighted their strong retention numbers. Denver-based AIMCO reported a retention rate of 68 percent in the first quarter, which is up 120 basis points over the first quarter of 2009 and an all-time high for the company.
Chicago-based Equity Residential, meanwhile, saw a 170 basis point decrease in resident turnover for the quarter—a continuation of a goal laid out last year. And on a quarter-to-date basis, Memphis-based Mid-America Apartment Communities saw its turnover drop 7.8 percent. And in the 12 months prior to that, Mid-America’s turnover dropped from 60.6 percent to 56.9 percent.
“That’s as low as I’ve seen on a 12-month basis,” says Thomas L. Grimes Jr., executive vice president and director of property management at Mid-America.
Even on the private side, things are improving. Woodward says Laramar’s retention rates have risen sharply, too.
“I think it really is pretty widespread,” says Greg Willett, vice president of research and analysis for Carrollton, Texas-based M/PF Research. “It’s not just the REITs. Everyone is paying attention to retention and making it a priority.”
Apartment companies say this change is being driven by customer service. AIMCO, for instance, attributes much of its increase in resident retention to a series of surveys and touch points that measure customer needs from initial visit to lease expiration. The company centralizes this information so its leasing team can focus on customer service.
“We made a really concerted effort to focus on what the customer needed and to do that before their lease expired,” says Melanie French, a senior vice president of operations at the REIT.
But there may be an even bigger driver than improved operation—people aren’t moving out to buy homes. That helps a lot. For instance, Mid-America usually sees about 25 percent of its move-outs leaving for homeownership. During the home buying craze of the mid 2000s, that number jumped to 30 percent. Now, it’s around 20 percent.
“We think it will be slow to move back up,” Grimes says. “And I don’t think it will go back to those crazy times.”
And when that happens, retention rates are bound to fall some. Both Willet and Ronald Witten, president of Dallas-based Witten Advisors, think the changes that apartment owners have implemented will serve them well as competition heats up. “I don’t think retention will fall back to where it was in the heyday when they didn’t care if someone moved out,” Witten says.