My Favorite Metrics to Track Apartment Conditions in 2021's Crazy Market

I’m a big baseball fan, dating back to my childhood years collecting baseball cards. I remember studying all the stats printed in what must have been size 4 font size on each card. Back then, I’d focus on the glamour stats: home runs for batters and strikeouts for pitchers.

In the years since, baseball stats grew exponentially in sophistication. A whole new field was invented: sabermetrics. Now, baseball fans focus on advanced stats that better capture a player’s value. Baseball cards have evolved too. When my 8-year-old son opens a pack of baseball cards these days (which, by the way, are crazy expensive now), he looks first at a player’s WAR (wins above replacement).

Apartment stats have similarly evolved over the years. The tools we now have to gauge apartment market performance are much more precise, more relevant and more timely. 

This is especially timely where we sit down in spring 2021. Real estate of all types has been remarkably volatile over the last year. Demand for all types of housing far exceeds supply. Homes are selling well above list price. Apartment rent growth is on track to reach all-time highs. How can you best keep tabs on apartment market performance? 

There’s a ton of data out there these days (including from RealPage), and we’re often asked to pick favorites. What are the leading measures of market movement? Investors and operators want to have a grasp on what’s happening now and what’s coming ahead.

A Few Quick Qualifiers and a Word on Asking Rents

For the purposes of this discussion, a few qualifiers: I’m focusing on KPIs to track performance in a market, submarket or comp group. That will differ from KPIs you might use to track your own assets and your portfolio. Also, I’m sharing favorites specific to monitoring very contemporary market trends here in 2021 based on the current environment. I would choose different KPIs to evaluate the long-term outlook of a submarket or market.

The traditional measure for apartment market performance is, of course, asking rent growth. You may also see it called “effective” rent growth but it’s essentially the same thing—an asking rent, just with an advertised concession baked in. Traditional rent growth is the best measure for evaluating longer-term trends across multiple cycles, given the depth of available data sources going back decades. But it’s not the best “right-now” KPI. By design, asking or effective rents are a lagging indicator. Property managers change their rents based on events that have already happened—shifts in supply (availability) and demand (leads or leases). 

Leading KPIs for Market Movement

So, what are the leading metrics that become predictive of future rent movement? Everyone has their favorites, and different KPIs provide different lenses into performance. Here are my go-to metrics to track apartment market conditions, and how I use them:

• Apartment Leasing Traffic: You might call them leads or guest cards or traffic. Whatever the term, this is a great metric for monitoring future demand patterns. Shopping will always precede lease signings. I remember watching this metric with amazement in May 2020—still during the height of pandemic lockdowns for most of the country—and seeing this remarkably rising tide of future demand. It turned out to be a tremendous early predictor of lease signings. And one great quality of leasing traffic is that it’s not artificially capped by availability, unlike absorption (net leasing), so you get a fuller view of demand.
• Lease-Over-Lease Rent Trade-Out, aka replacement rents: This one is a bit controversial, but since I’m picking my personal favorites, I’m including trade-out as my go-to rent metric. Trade-out is the best apples-to-apples measure of right-now pricing – what rents actually sign for compared to the previous lease for the same unit (new or renewal). New lease trade-out has proven to be remarkably predictive of future asking rent growth. Stat heads tend to love this metric, but I also talk to executives who aren’t fans. Some will downplay trade-out due to its volatile nature. 
• Rental Revenue (Revenue / Available or Total Square Footage): Cashflow is a big part of the game for owners and operators, and revenue provides that measure. Revenue (sourced from rent rolls) captures all the operational input metrics – rents, occupancy, vacant days between leases, renewals, etc. Revenue is, of course, an outcome and not a predictive KPI. I like to watch the timing between early, leading KPIs translating to bottom-line revenue.
• Resident Retention and Average Vacant Days Between Leases: I intentionally combine these because I like to look at the two next to each other. Retention tells us what percentage of the existing resident base chooses to renew their lease in the same unit. Retention skyrocketed in 2020 when renters couldn’t or wouldn’t move, and now we’re seeing some normalization. In 2021, moderating retention has been a big win for operators because units are not sitting vacant long, and they’re usually capturing much higher rents on the new leases than they would on the renewals. Balance is key here. Many operators still overweight retention. In a high-demand market, you need churn to capture higher market pricing and boost rent roll value. In a low-demand market, you need more retention in order to protect rent roll value. By watching average vacant days and other KPIs, you can better set renewal goals.
• Real Renter Incomes: That data (sourced from renter applications among those signing leases) is much more telling than the publicly available Census income data. Renter income trends tell us about affordability and rent growth runway. The good news right now is that incomes are climbing, and rent-to-income ratios remain fairly stagnant. This metric now displaces rent collections (which appear to have stabilized) as the go-to KPI on affordability.

Whatever metrics you prefer, choose data sources that supplement traditional asking rents with metrics pulled directly from rent rolls and financials. Data from internet listing websites and surveys play a supporting role, but in a volatile market, you need the most precise and predictive KPIs to stay ahead of the game.

Jay Parsons is vice president and deputy chief economist at RealPage.