Apartment operators struggled with price-conscious consumers, employment driven turn-over in Q1


The first quarter earnings calls from multi-family companies revealed a handful of common themes.

Occupancies are down, net effective rents declining and consumers increasingly price sensitive. Further, investment in new developments is reduced and M&A activity generally at a standstill because of the overhang of the capital markets.

The operating response is to focus on reducing expense and attract and retain tenants cost-efficiently.

At Avalon Bay, they are seeing a significant increase in residents moving out of their communities to find a lower rent, along with residents who are leaving because they have lost a job.

Drilling down on a discussion of our markets, in general, renters are understandably price sensitive as they focus on reducing their living expenses. Three facts regarding reasons for move out are worth noting.

First, moving within or to another community was the top reason for move out at approximately 18% and may residents are stating that the reason for this change is to reduce housing costs. Second, financial and loss of employment accounted for approximately 15% of our move outs. These reasons typically account for about 10% of move outs and provide further evidence of the impact the weakening economy is having on our residents.

And finally, home purchases fell to 15% of move outs, well under the historical average of 20% to 25%. There is no sign yet that improving home affordability is boosting home purchases among our residents.

That increase in financial stress has put pressure on move-in rents as well, management says.

Across the portfolio, new move in rents are approximately down about 10% to 12% and we have been able to maintain positive renewal rents across the portfolio, roughly around 2%.

At Equity Residential, they’ve observed a significant increase in foot traffic, but not a commensurate gain in lease closing. Management points to a decline in web traffic to suggest that overall demand for apartments is down. [Note: that decline has not been apparent at Apartmentfinder.com.]

Our foot traffic, those people that are recorded that walk into our office, that number is up 4.6% year-to-date. Now I tribute that to two things number one we have a very focused initiative around sales, our people are doing an excellent job of working with customers, following up that’s driving some of that improvements.

But secondly I think there is lot of tire kickers out here, people are shopping right. And I think that evidenhttp://www.biblesociety.org.uk/content/lge/510-6a.jpgced in the unique visitors — the unique visitor accounts that you see on the major ILS, our equityapartments.com site, our unique visitors are down somewhere around 7% apartments.com down about 8% rent.com all of these ILS is that report their staff they all see a reduction in monthly unit business. So, it’s clear that demand is down but yet we are seeing more people shopping our communities and coming to the door each month.

When people are applying for a lease, the quality of credit is down significantly, again a sign of the increased financial stress among consumers. At Colonial, management is experiencing the same increases in financially-driven move-outs as other multi-family companies.

Traffic was at the same level as last year; however, we have seen a decrease in credit quality. Application denials are up to 16.1% from 4.6% a year ago.

Overall resident turnover is up 180 basis points as compared to last year and up 40 basis points sequentially.

As expected, financial and job-related turnover was up roughly 870 basis points to 27.1%, a trend that we expect to continue. However, turnover related to homebuyers was 12.8%, down 700 basis points from a year ago.

For the quarter, turnover due to renting a home was 2.3%, which was up 20 basis points sequentially. Consistent with the deterioration in the economic environment, rates on new leases decreased 4% for the quarter based on 5,200 new leases. Renewal rates for the quarter were flat based on 3,500 renewals.

In general, the leaders of these companies concur that the path out of this slowdown will be gradual. While the demographic trends are strong for rental housing, management believes that the overhang of affordable single family homes for sale will siphon off some percentage of the renter market when the economy improves.