Myths of Apartment Rental Pricing Clarified

May 30, 2022

When you google "When is the best time to rent", many blogs will tell you that rents peak in the summer and fall in the winter, making May to September the most expensive time to rent. This is because new jobs start in the fall, school is not in session, and not many want to move during the cold winter months. Using 108,388 data points and 7 buildings that Plot-Z has tracked over a year, we explain why these myths should be reconsidered in today’s post-Covid market.

Myth 1: Summer rents are high, winter rents are low

This is a common saying amongst renters and investors, even across institutionally-managed groups. Here are 2 graphs from June 2021 to 2022 to show our readers that rents can indeed peak in January and March, the periods we had previously considered “low season”. 

Examples of buildings with rents peaking in traditionally "low" seasons

Why we think this is happening

Rents in summer had traditionally been high because of three tenant profiles - college graduates, students and young families. College graduates typically search for jobs between summer and fall, signing apartment leases as they land jobs. Students typically move in before college commences in fall. Young families also prefer to move in the summer when school is not in session.

Since Covid however, flexible working arrangements have become the norm. Workers no longer have to commute and by working remotely, they can stay put even when they change jobs. Students also have the choice of attending college online, although many are not attending altogether. College admissions has been on the steady decline of 5% since 2019 due to rising costs and many families are starting to doubt the return-on-investment of a college degree. Finally, many apartment buildings are now offering flexible leases, meaning renters are no longer tied to the traditional 12-month lease. Together, these factors have broken the traditional, cyclical summer rental demand.

Myth 2: Rents do not move much by the week

Many assume that prices do not move weekly because changes in rental demand is gradual, and that leasing managers update their prices on a monthly basis. Here are graphs of 4 different buildings that show movement in their weekly pricing. In stabilized markets such as Sawtelle, the peak-to-trough is at 10%, while for volatile markets such as Downtown LA, we see a maximum peak-to-trough of 28.9%.

Weekly Price Change: 6.4% - 10.5% in Stabilized Markets
Weekly Price Change: 22.8% to 28.9% for Volatile Markets

Why we think this is happening

Many leasing managers have adopted dynamic pricing software to help them price units daily. Inspired by airlines' dynamic pricing, these pricing engines respond quickly to market changes in supply and demand. Daily fluctuations also work well as a sales tactic to get renters to act. Finally, rental demand has been changing as frequently as companies announce their back-to-office work policies.

Ultimately, Plot-Z's belief is that supply and demand is the biggest driver of pricing. Take a look at AO Santa Monica’s prices in the table below. Regardless of "high" or "low" seasons, a 2-bedroom costs almost the same, as its supply stayed relatively the same, resulting in a 1% premium in the summer. For 1-bedroom and 3-bedroom units however, prices increase sharply as availability falls.

Note: for luxury buildings, this pattern may not follow as leasing managers are willing to accept higher vacancy for the right tenant profile. A good write-up on how leasing managers set pricing strategy can be read here

Actual unit availability at a property is a bigger driver of rental pricing

What does this mean for real estate investors?

Always ask your operators to provide comps pricing over a time period, instead of a snapshot. This is to ensure that they are not cherry-picking data to show the most bullish market. In volatile markets especially, it is important to average out the peaks and troughs. With construction costs rising, a difference of $200/month per unit can affect your cap rate significantly.

What does this mean for property managers?

Stay up to date with your competitors at least weekly - understand their occupancy levels, concessions and amenity premiums. Renters have a wide selection today so pricing your units competitively can help to reduce vacancy. Our "compare" tool helps you understand where your pricing sits across your comp set, by the unit type and across a time period.

Plot-Z's Compare Tool - Plot rent graphs of your comp set instantly to see how your asset is priced over a time period

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