The multifamily market is experiencing a surge in renewals as renters across the country are opting to stay in place, either by choice or by necessity. Strong renewal rates reflect robust market fundamentals and high tenant satisfaction, according to Berkadia’s June multifamily market trends report.
This trend could bring a variety of benefits for both renters and landlords. Renters avoid relocation costs and can often procure more flexible lease terms. Meanwhile, apartment operators benefit from stable cash flow and reduced vacancy rates, according to Berkadia.
Several factors influence the likelihood of renters to favor renewals, including economic conditions, psychological factors and market influences, the broke further explained. Apartment renewals averaged 50.4% following the Global Financial Crisis, up from 43.1% during the five years prior. Since the pandemic, nearly 55% of renters in professionally managed units have chosen to stay in place, up 410 basis points from 2010 to 2019.
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During and immediately after a recession, job markets are typically unstable, the report said. Following the pandemic, workers had more power to find another job or relocate, leading to the Great Resignation, which was reflected in a sharp drop in apartment renewals. Since then, resignations have slowed and job openings have moderated to 4.3% as of March.
“Renters facing job uncertainty may prefer the predictability of their current rent, especially if they have negotiated favorable terms,” the report said. “Historically, rent increases for rent renewals are more moderate, though on average they never shift negatively no matter the economic conditions. This benefits renters and apartment operators alike.”
Economic conditions also influence credit markets and may make it more difficult for renters to secure loans for home purchases and increase the likelihood of lease renewals. For renters who can afford to purchase a home but aren’t finding acceptable options, staying in place provides the psychological comfort of staying in a known environment, said the report.
Geography plays a role in lease renewals, with the Northeast region historically leading all regions due to high relocation costs, unfavorable winter moving conditions and stable job markets that give renters plenty of opportunities to find jobs near their rental rather than having to relocate to an area where they can find a job. During the first quarter, this trend continued, with 64.1% of leases renewing, compared with 55.4% nationwide.
The West, on the other hand, has some of the lowest lease renewal rates in the country. States like Arizona and Nevada often attract a more transient population due to industries like technology and entertainment, as well as a wider range of housing options that can draw residents away from apartments.
Landlords have an opportunity to leverage current market dynamics to further enhance tenant retention. Renewals minimize turnover costs, including marketing and preparing units for new tenants, which have soared by 40% from before the pandemic. This stability allows property management to focus on maintaining and improving the property.
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Kristen Smithberg
Kristen Smithberg is a Colorado-based freelance writer who covers commercial real estate, insurance, benefits and retirement topics for BenefitsPRO and other industry publications.
