If you follow my posts and read my blogs, you’ll begin to gather that I am a huge advocator for re-writing playbooks, and challenging views with critical, deep thinking that our industry is vastly missing. I strive to bring awareness to the multifamily industry and help bridge the gap so often seen between investor groups and property management companies.
Often, business plans are based on internal needs for a return multiple or a timeline for equity to be quantified. This is often based on a strict buy box of a product type, vintage year, asset class and hold time preference. This usually produces a plug and play module that eliminates most organic methods. When we talk about multifamily investing, one of the main reasons why it is a recession proof investment is because it is demographically driven. No matter the economic cycle, the constant changing variable is the demographic class. Whereas investments like crypto, stocks, bonds, etc., are cycle driven and succeeded when the economy is up and doing well. If multifamily has always been known for being demographically driven, business plans need to adjust the focus onto demographics and forecasted generational changes. Implementing the annual projections based on what the renter needs rather than a repeat method or what the competition is doing will drive returns more strategically, steadily and sustainably over time.
The industry of Multifamily is seeing major shifts that is forcing operators to press reset and internally strategize how business will be ran going forward. Reducing expenses and increasing income has always been the focus and foundation for investor groups’ bottom line. Property management firms also focus on the bottom line, however, the vision to getting from point A to point B is vastly different between the two groups. Investment groups are building their business plans, based off of numbers, returns, multiples and forced appreciation. Property Management firms, on the other hand, focus on their people, residents, retention, culture, etc. If the end goal is to get from point A to point B for both groups, but the seed that built the vision does not incorporate the focus of both groups, then the likelihood of a successful business plan is minimal.
Knowing your demographics need in housing, amenities, technology, cosmetics, smart home advances and social drivers should be a main factor within your business plan and capital goals. When you begin to make this switch, something magic will happen. If done strategically and ethically, what was once being forced into operational costs can now be categorized as a capital expenditure. Knowing your demographics helps with targeted marketing, rental demand, risk assessments and development. Let’s begin to dive into the proven generational needs for most apartment renters today.
Generation Z takes up 20% of the US population, or 68.6 million people. This is the generation of people born between 1997 and 2012. Falling between Millennials and Generation alpha, Gen Z is at a turning point. The youngest among them are still in primary school, while the oldest are leaving college, entering the work force, and starting families. They grew up with multiple screens, in households where social media, streaming and one-day shipping were the norm. They also experienced a global pandemic during their formative years and mental health challenges that maturity and independence. As the oldest members make their way into the workforce, they are considering their long-term goals and helping to shape the future of work and housing needs.
There is no doubt that renting is becoming more appealing to every generation. The American dream of home ownership is no longer a desirable goal for Generation Z renters, Millennials, and Gen X. 66% of renters, based on RealPage statistics between the age of 18 and 55, are satisfied with renting an apartment rather than purchasing a home. 48% of homeowners within this age group say they rent their home out for better financial freedom and prefer renting an apartment for various reasons. The meaning of renting has really changed over the years. It is no longer associated with below average household incomes. The apartments that are being built today are a lot nicer and better located than those that were built 20/30 years ago. Renters also prefer to live in nice locations, with nice amenities, maintenance free living and to dodge property taxes. Generation Z, particularly, prefers to not be locked into a certain location. They like the flexibility of renting, as do the older generations that are transitioning out of ownership due to lifestyle changes.
There are common trends each generation is searching for when looking for a rental. I focus on Gen Z because they are and will be the force of the future for the workforce and housing industry. Over the next 10 years, they will be the biggest population living in apartments. The ability to forecast is the strongest asset an investor and business owner can have. The way the business works today, will be drastically different in the coming years. When searching for rentals, Generation Z likes to control their own adventure and use multiple channels for research. AI (artificial intelligence) is a huge driver here in communicating with this generation and using algorithms to put marketing right in front of them. They also prefer to not speak directly to personnel and would rather control their own experience through AI generated tours, application processes and mobile maintenance measures. This Generation does want peace of mind that there is human interaction when needed, but they are not dependent on it.
Further, this generation highly values being organic and authentic. They are suspicious of anything that does not obtain these qualities. Generic adds and dated marketing efforts are the first to detour their efforts. They may even go to the property and or chat with fellow renters on social media platforms. They also have the ability to quickly search through reviews and eliminate product that seems like a red flag. This generation moves fast, so if you do not have VA (virtual assistant) responding immediately to their requests, they will be shopping other assets. Some top rental preferences are proximity to shopping, concierge options, vehicle sharing hub, technology options, smart home features, dedicated parking, active social events and pet friendly communities.
All in all, the renters of tomorrow expect more out of their apartment and community and they can afford it. I am not saying to only build business plans that communicate with certain age groups; that would be walking the tight rope of fair housing violations. What I am strongly saying is that it’s time to start focusing on the generational shifts that are occurring and implement as many features as possible into your asset class to attract future renters. It is time to start thinking about what KPI measurements that we are not leveraging today that we could be.
In essence, demographics serve as a compass for multifamily investors, guiding them to make informed decisions that align with the needs and preferences of the community they serve. Shifting the demographic need to the beginning of the business plan process will ultimately help bridge the gap in operational retention.