Blog May 20, 2020

5 key takeaways: The impact of COVID-19 on multifamily

By Brian Zrimsek

The MRI Software Market Insights team recently issued a report covering the impact of COVID-19 on the US multifamily real estate market. Data from across MRI’s client base shows that the COVID-19 crisis prompted substantial changes to leasing activity, operations, and renter behavior between February and April 2020.

Here are five big takeaways from the MRI Software Market Insights Report on Multifamily.

1) Shopping is steadying out while leasing is hampered

The lead-to-lease funnel has been hit from the top down by the COVID-19 crisis, with each level impacted having an effect on the one below it. From March 15, 2020 through April 11, 2020, the industry saw a significant shift in traffic, which fell an average of 29% as compared to the same period in 2019. By mid-April, traffic had nearly rebounded and remains ahead of the 2019 pace.

Traffic is, however, a leading indicator for applications, the next step in the leasing funnel. Multifamily properties across the US saw a similar decline in new rental applications, which dropped 29% in the four-week period starting on March 22, 2020 before improving, but remaining 11% off prior year levels as April ended.

The next step in the funnel is move-ins. A reduction in traffic and applicants led to a 38% reduction in move-in volume from March 22, 2020 through April 18, 2020 and remained 26% off the prior year’s pace as April closed. Taken together, these three metrics paint a picture of the kind of potential resident we can expect to see during this crisis: a more patient prospect who may shop for a new apartment as before, but is less inclined to apply or subsequently move in.

2) Residents are staying in place

The report indicates that between February and April 2020, the typical resident may not have felt comfortable moving around as freely as before. Notices to vacate (NTV) were down 16% in February and continued to fall behind 2019’s pace. Overall, they were down slightly over 11% from last year and remained off by over 30% as April closed. NTV cancellations, a measure of residents deciding to rescind a prior notice to vacate, were also behind pace through March and increased roughly 5% across April.

In addition, move out volumes, which were already slightly behind 2019, dropped and held at 79% of 2019’s pace from March 15, 2020 through the end of April, appropriately following the waning in NTV volume. Reduction in move outs naturally led to a 4% increase in renewals.

All in all, this shows that throughout these past few months, residents have been hesitant to make changes to their renting and leasing patterns. This also contributes to the reduction in shopping, application and move-ins.

3) Pricing is declining

As shown so far, many residents did not appear eager to leave their current living situations any time soon, and the drop in demand for new apartments is having an impact on pricing. New lease pricing, up 1-2% year-over-year for both February and March, saw a decline in April for an average net reduction of 0.8% for 9-month to 15-month terms, with the most prevalent 12-month term being off 2% from March 2020. In addition to this, renewal pricing for April has also softened for the 12- to 14-month terms.

Likewise, the number of concessions given by landlords saw a substantial increase year over year. A slight 3% increase in March gave way to a significant increase of 53% in April. While the average monthly concession value dropped by 22.5%, the total value of monthly concessions granted increased by 19%. With new lease and renewal prices decreasing, and concessions increasing, it’s clear that landlords are looking to make up for the drop in demand from residents due to the COVID-19 pandemic.

4) Lease terms are increasing

Just as new lease and renewal pricing declined, lease and renewal terms appeared to head in the opposite direction. Lease terms for February, March and April 2020, as compared to 2019, increased in 12-month terms, with April being up 10% over 2019. Renewal terms for April also saw a continued focus on the 12-month term, noting a 3% increase at the expense of 14-month terms that decreased 1.6%. As new lease and renewal terms move conversely with pricing, we have a clear image of potential residents who are less inclined to significantly alter their current living situations, and as a result, we have a softer multifamily market. The question, however, remains: How will resident behaviors and attitudes be affected in the long run?

5) Residents are making better use of technology

COVID-19 is pushing people across the country to adopt new technologies in order to hang on to some semblance of “normal,” and multifamily residents are no different. Since the start of the pandemic, resident portal usage has gone up 33% with a focus on paying rent as more people remain indoors. The most dramatic change in portal usage arrived in April, however, when it came time to pay rent under shelter in place orders. Total electronic payment volume for April increased more than 12% from February, with a changing mix of ACH and card payment methods.

But residents weren’t the only ones turning to technology. Broadcast email and text messages from the property office to residents saw a spike in volume by almost twice the normal rate as properties worked through the upheaval caused by the pandemic. As April closed out, volumes returned to expected levels. Package handling, a service many properties stopped as a result of the pandemic, also dropped precipitously to 30% of prior volumes. Even when the use of specific technologies did not necessarily increase, there’s no question that multifamily residents and landlords are using technology in more efficient ways.

The MRI Software Market Insights report illustrates not just how residents and property owners responded in the wake of a crisis, but also what the overall multifamily market might look like on the other side of the COVID-19 pandemic. When a vaccine is developed and people can once again travel safely outside their homes, many of the results found in this report will likely still be affecting the industry. Read the full Market Insights report here.

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