In the last few months, we have heard more clients talk about the increasingly difficult leasing environment. Let’s go back to the basics when we think about leasing properties:
- Supply: The supply of rental homes is steadily, albeit incrementally, increasing through new build-to-rent single-family construction and, notably, new multi-family developments… more on that in a future blog post.
- Demand: The fundamentals of demand for single-family rental homes are still strong – the millennial generation is in prime household formation years, and most of them are now opting for a single-family home to accommodate a child, a work-from-home office, a pet, etc. One key with rental demand, in particular, is how expensive it is to buy a home in today’s mortgage rate environment – many would-be homeowners are forced to rent until their finances make more sense.
It appears that supply is ticking up and demand is predicted to remain steady on a macro level. However there must be a seasonal dip in demand based on what our clients are experiencing and what the data shows below.
Long Vacancy Days On Market
To measure the current leasing environment for single-family rental homes, we studied the number of vacant properties that have been on the market for over 30 days. The below graph shows the average number of vacant single-family rentals on the market for over 30 days in the 30 markets that we track:
The graph above shows that between August and October there have been 43% more properties sitting on the market for over 30 days compared with the previous 6 months.
New Listings?
We also looked at the number of newly listed properties in those markets to make sure this was not just a ‘new supply’ story:
The graph above shows that newly listed properties in the last 3 months are only up 10% compared with the previous 6 months. So, we can conclude that single-family rental properties are, in fact sitting on the market longer.
Long Days On Market… by Market
What markets are experiencing the most substantial long days on market increase? The 5 markets with the highest increase in properties listed for 30 days or longer are:
- Cincinnati, OH (+131%)
- Austin, TX (+96%)
- Ft Myers, FL (+92%)
- San Antonio, TX (+89%)
- Denver, CO (+71%)
The graph above shows that only Indianapolis has seen a slight decrease (-2%) in the average number of vacant properties on the market for over 30 days in the last 3 months vs. the previous 6 months. All other markets tracked have seen an increase, and generally speaking, that increase is substantial. Markets with either a decrease or moderate increase are:
- Indianapolis, IN (-2%)
- Raleigh, NC (+10%)
- Tucson, AZ (+11%)
- St Louis, MO (+14%)
- Charlotte, NC (+19%)
Impact on Leasing
Vacancy days are the achilles heel of any single-family rental property manager or operator. Given the current leasing environment, SFR operators are seeking creative ways to enhance their marketing and leasing strategy. Here are some concepts we are hearing about from our clients to combat higher vacancy days:
- 3D Tours and Floor Plans for all properties
- Virtual Staging for 3 main rooms on all properties
- 50% or 100% off the first month’s rent
- Local real estate agent commissions/incentives
- Facebook / Instagram Ads
- Enhanced feedback loop from showings to improve the property or price as needed
- Renewal incentives to avoid the vacancy in the first place
We will continue working with our clients to market vacant properties in the best possible light to give them the best chance to succeed over the increased competition. It starts with the fundamentals, and now we will see which creative solutions begin to win out.