This new focus on growth is what the report calls “a meaningful departure from the previous two
years,” which, as we all know too well, were consumed by COVID-19 pressures. “Now, [these property managers have] determined to get things back on track and have identified portfolio growth as their companies’ number-one area of focus.”
It’s important to note that the COVID focus didn’t stem growth across the board. In fact, 80% of respondents report growth over the past two years, and the majority of those characterize that growth as “significant.”
Turning to 2023 and beyond, expansion plans are more prevalent now than they’ve been over the past five years, with fully 92% of third-party management firms (the focus of the survey) planning to add properties to their portfolios. In addition, more than half once again characterize their expansion plans as “significant, reflecting an outlook that’s brightened considerably since the pandemic began.”
How will that growth shape up? For 77%, it entails recruiting new clients. For 51%, it’s through encouraging current clients to expand. Company acquisitions are on the list for 39% of respondents, while buying new assets is on deck for 31%. Two more options–diversifying by property type or by metro region–tied at 30%.
There are other means of revenue growth that survey takers are eyeing for the coming two years, plans such as an increase in rents and resident fees (73%); leveraging new technologies for greater efficiency (48%); expanding service offerings (45%) and making value-add updates to properties (44%).
Growth plans are a great bellwether of the outlook, but they don’t come without their challenges. Included in that list are such hurdles as:
Seller’s Market Conditions. “High sales prices are giving rental owners a reason
to sell their properties,” says the report, “and preventing investors from acquiring new rentals at an ideal pace or price point.”
Low Margins. “The cost of operating a rental property has risen significantly due to inflation, supply chain abnormalities, and labor shortages.”
Rental Affordability. The above-mentioned seller’s market is squeezing potential renters who are already dealing with “inflation and pandemic-induced financial struggles.” Other discordant trends include professional competition, staffing and regulatory burdens.
The good news is that, since the pandemic, more ownership entities are turning to property managers to “run their rentals.” At 55% prior to the pandemic, that number has now spiked to 63%.
The less-than-good news is that not all owners are on the same growth trajectory as property managers. This is especially true of smaller owners who see more upside in selling their properties. As of the start of this year, 37% of “mom-and-pops” were considering selling. And 55% of those had no plans to buy more. Five percent of survey takers will replace residential assets with commercial properties.
Happily, a majority of owners “have continued to see residential rentals as a solid investment
throughout the pandemic,” says the report. In fact, 40% are looking to add new properties, a consideration that aligns perfectly with property managers’ post-pandemic growth strategies.
In all, despite such current challenges as inflation, a threat of recession and supply chain hang-ups, the outlook is bright. “After nearly three years of directing their energy toward shorter-term, pandemic-induced challenges,” the report concludes, “companies are ready to shift their gaze back to their long-term health. Their outlook remains bright despite headwinds like increased property sales and slower property acquisitions among their clients due to the hot housing market.”