Buildium writes about the seven rental market trends for 2023 that the company is seeing in its annual property management and industry report and analyses from leading real estate sources in the industry.
The company reports that over the last two years, many property managers’ business plans “were reactionary”, keeping their businesses afloat amid lockdowns, record inflation, panicked residents, and a supply shortage on practically everything.
“As we get ready for 2023, we are waiting to see if the Federal Reserve will continue to raise interest rates to rein in inflation. That leaves rental-market predictions a bit tough to make, but there are some clear trends coming to the fore,” Buildium says.
Seven Rental Market Trends
The seven rental market trends for 2023 include more investment-minded owners in the rental real estate market and more mixed-use properties.
- More Investment-Minded Owners in the Rental Real Estate Market
According to the 2023 Property Management Industry Report published by Buildium, Propertyware, and NARPM, 52 percent of rental owners surveyed consider themselves intentional investors, while just 24 percent think of themselves as accidental landlords—those who own or inherited a property they couldn’t sell and so had to rent out—or unintentional investors, who became landlords by accident, but now consider themselves investors. That marks a significant increase in the share of investors who are a part of property managers’ client base over the last five years.
With more investment-minded owners in their client base, property managers have had to pivot their own service offerings. The prior typical landlord just needed a professional to handle maintenance, rent collection, and tenant turnover; today, more owners want a partner in their investment strategy.
Many property managers now advise their clients on property upgrades and services that will help increase value and portfolio expansion. Being experts in their local market, some investors rely on their property manager to find properties in which to invest.
Think about the services you currently offer. How could you capitalize on your team’s expertise to meet the demands of more investment-minded rental owners? Could you partner with a local contractor to offer property upgrades, or build your own team in-house, for example? Then, rethink your marketing strategy to ensure your new service offerings are included.
- Mixed-Use Properties Are Back
While mixed-use properties—those that include a blend of residential, retail/entertainment, and business properties—lost some ground during the pandemic, the trend is making a comeback as construction gets under way once more.
According to Price Waterhouse Cooper’s (PwC) Emerging Trends in Real Estate 2023, of the 1,300 malls in the United States, 500 are undergoing renovation into mixed-use spaces. The properties offer plenty of attractive features for residents, including easy access to restaurants, shops, and entertainment, as well as such essentials as grocery stores and medical centers.
Mixed-use properties may be worth a look for investment-minded property managers, particularly those who have the staff and resources to add commercial spaces to their portfolios.
Even if mixed-use is not on your radar, in terms of your clientele, it’s still worth knowing how those properties could affect your current portfolio. For example, properties near a mixed-use complex will benefit from the convenience of being near so many shops, restaurants, and other resources.
- The Suburbs and Single-Family Rentals Are Still Attractive
Both PwC’s and Buildium’s reports point to the continued popularity of single-family rentals. According to the latter, 68 percent of respondents lived in suburban or rural areas, a number that has steadily increased over the last five years. These tenants are looking for:
- A safe, quiet, family-friendly neighborhood
- The indoor and outdoor space that allows them to grow their families, whether that means welcoming children, pets, or other family members
- A child-friendly home that provides air conditioning, a washer and dryer, and a dishwasher
Property managers with single-family properties in their portfolios can attract residents by providing these amenities.
One thing property managers should keep in mind, however, is the amount of debt and lack of savings single-family renters tend to have. In our Single-Family Renter’s Survey, we found that single-family renters had larger families to support, less savings and more debt. As the economy continues to slide, it’s important to keep in constant communication with residents and to work with those who may be affected by the current economic climate.
- Record Inflation Will Most Likely Continue in 2023
From food to gas to home heating fuel, everything costs more now. In fact, according to the Federal Reserve Bank of Dallas, inflation is now at a 40-year high. Despite the passing of the Inflation Reduction Act, the cost of living is still rising.
According to the 2023 Property Management Industry Report, 26 percent of renter respondents paid most bills on time and in full and 11 percent reported that they’re struggling to keep up with their household expenses.
During the height of the pandemic, property managers found that open lines of communication between themselves and their residents helped ease the burden of missed rent payments. Those lines will continue to play a vital role in your property-management strategy. Property managers can continue to help residents find government assistance programs, for example.
At the same time, rising costs will affect how property managers keep their businesses profitable, as well. Look at your vendor costs and overhead, for example, to see where you can renegotiate contracts or find more economic solutions.
- Mortgage Interest Rates May Continue to Rise
In early November, the Fed raised interest rates for the fourth time in 2022 to just over seven percent. The Nasdaq is predicting that they could reach as high as nine percent in 2023. The dramatic increase has forced Americans who were looking to become homeowners to reconsider, and continue to rent.
Property managers should keep an eye on the Fed to see how mortgage rates net out in the coming months and adjust their marketing and resident onboarding strategies to keep vacancy rates at a minimum.
- Renters Are Now Coming from Multiple Age Groups
Baby boomers, who are becoming tired of the hassle of keeping up a house, now make up a significant portion of renters in the United States. At the same time, more millennials, the largest generation in the country, enter the housing market every year, usually as renters first.
For property managers, this means a shift in the types of housing and services they provide their residents. Older residents, for example, will look for accessibility and convenience to help them age at home. Elevators, ramps, safety rails in bathrooms, and other ADA-compliant equipment are sought-after features in rental properties.
Communications, marketing, and amenities will also shift. Residents—even baby boomers—will be looking for more convenience, more digital options for communication and rent payment, as well as services that cater to multiple generations within a household.
- Renters Are Looking for Diversified Space
The shift to work-from-home and the increased number of families-as-renters will continue to have an effect on the types of spaces renters are looking for. According to PwC and our Industry Report, rental market trends show more residents want:
- Homes with an extra room or flex space: Owners are borrowing space from larger open rooms to create smaller private spaces, or adding an office in dead space off a hallway.
- Units with outdoor space: That doesn’t necessarily mean a large yard. Outdoor spaces could be a simple patio or a small garden.
- A mix of public and private spaces: For example, a home may have a larger kitchen and living room with adjacent food prep spaces or book nooks.
The buzz around rental-market predictions becomes louder, and the opportunities for property managers and owners to invest in, improve, and expand their properties become more apparent.