Key Takeaways about the Current State of the Property Management Industry

By Nat Kunes

As a real estate professional, it’s critical to keep your finger on the pulse of the industry. Easier said than done, right? With running the day-to-day, focusing on strategy and growth, and personnel management, it’s hard to find the time to stay in the know; so here’s an overview of the current state of the real estate industry as it pertains to property management.

Top Property Management Segments and Breakdown

When you look at the property management market, three main segments come to mind: commercial, residential, and community associations. Currently commercial makes up the largest part of the market at 41%, residential is close at 38%, and community associations make up the remaining 21%.

Taking a closer look at commercial, by lease you’ll find the breakdown is 53% office space, 40% retail space, and 7% industrial.

The residential breakdown shows us that most of the units are multifamily (43%), single-family making up 39%, and the 2-4 unit complexes at 18% of the market.

Those of you in the community association space might find it interesting that the market shows a near split between condos (45%) and HOAs (51%), the remaining being categorized as various types of co-ops.

Trends to Watch

A trend line that I like to keep an eye on is occupancy rates. We saw occupancy peak in the United States in 2015 at just over 95%, and it’s been on a very slight decline ever since landing currently at about 94.5%. Such a minimal decline does not call for panic or hasty decision making at this time, but it’s something to stay aware of. The long-term average hovers around 92%, so at this point, we’re in really good shape. Note that the main thing that occupancy rates drive is effective rent growth.

Effective rent growth is another trend worth tracking. Year to date, 2018 is not showing any tremendous growth and so far staying in line with the past few years – that tells us that the market is somewhat steady in this respect in terms of the status quo. The high water mark was 2015 where nation-wide effective rent growth was as high as 6%, but this past year it hovered around 4%. The long-term average for rent growth is 2.2%, so we’re still way above those averages. Keep in mind that this is very geographically-specific, so your market may be different from these nation-wide averages.

Now here’s where things get interesting – homeownership rates! If you haven’t been paying attention to these, you should start. Homeownership rates are at their lowest since the 1960s. Although we saw a slight uptick in the last couple of years, they are still low. At its peak, we saw homeownership at nearly 70% in 2004, and now it’s about 64%. What’s behind this drop in homeownership? The analysis shows that there are a number of factors, some being that people are getting married and having children later in life, which are significant triggers for homeownership. On the opposite end of the spectrum, you have Baby Boomers, many of which are trading in the complexities of homeownership for the simpler, more convenient option of renting.

Maximize Market Trends

I encourage you to dive deeper into the market segments that impact you. With occupancy on the decline, is it time to focus more efforts on marketing your properties and making sure your current residents are happy? If homeownership continues to remain low (or perhaps decline even more), take a look at the demand in your region, and maybe you can increase rent to boost revenue? Everyone has a different situation depending on their market, city, and portfolio mix, but the important thing is to keep an eye on the market while you’re keeping an eye on your business.

About the Author

Nat Kunes is the Vice President of Product for AppFolio. He works on a daily basis with property management professionals to identify industry trends and product features that are included in AppFolio's property management software.  AppFolio is an IREM President Level Industry Partner.

 

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