In the world of multifamily development, a widely held belief is that there is an inverse correlation between occupancy rates and rental prices.
The assumption is simple: if you charge higher rents, your occupancy rates will drop, and vice versa; if your occupancy is soaring, you must be priced too low. However, this belief is more myth than reality.
At Transforming Cities, we know this to be true: with strong, effective marketing strategies, it is possible to achieve both high rents and high occupancy rates simultaneously.
The conventional wisdom in multifamily suggests that property owners must lower their rents to attract more residents to maintain high occupancy. Conversely, raising rents is believed to drive happy residents away, leading to lower occupancy and other negative fallout.
While this might hold true in some scenarios, it overlooks a critical factor: the role of strong marketing. When marketing is executed effectively, it can create a perception of value that justifies higher rents while still attracting tenants.
Effective marketing in preleasing isn't just about platinum ILS packages and a “pretty” website.
It involves a comprehensive strategy that includes understanding your market opportunity, highlighting unique property features and finishes, leveraging high-quality visual advertising, and using data-driven pricing strategies.
The caveat is you have to spend money to make money here. All too often, stakeholders agree on a measly $50K to market their $130M project.
To discern appropriate spend, our market-leading approach is at least .50% of their overall project cost for apartment projects and 1% for condominiums. These strategies are tailored to what we know works in today's market.
Project Value ($) | | 0.50% Marketing Investment ($) |
50,000,000 | 250,000 |
60,000,000 | 300,000 |
70,000,000 | 350,000 |
80,000,000 | 400,000 |
90,000,000 | 450,000 |
100,000,000 | 500,000 |
If those numbers gave you sticker shock, let me remind you of the ROI here.
Return on investment = (Net Return / Cost of Investment) x 100
For example, for the Aubrey project, our partners at Left Lane attribute the comprehensive brand experience Authentic created to a 5% increase in rent per square foot. This amounted to $38k of additional monthly NOI and a $733,000k increase in value after the first year alone.
Now, if you forgo sizable investments for marketing expenses, you will struggle to fill vacancies and miss out on qualified traffic. Plain and simple. Multifamily marketing is not one of those line items on the proforma where you can expect to do more with less.
You will do less with less.
What does the ROI on a small marketing budget look like? Factoring in a prolonged stabilization period, plus a cutthroat market with plenty of inventory, the ROI looks… in the negative.
But hey! Your site team will still have plenty of semi-qualified, semi-fraudulent leads to the field since you put all of your eggs into the ILS basket.
1. Understanding the Target Market: Knowing who your potential tenants are is crucial. Different psychographics (similar but different) value different aspects of a property. For example, younger healthcare professionals might prioritize proximity to work and social amenities, while adventure seekers might look for ample storage and pet-friendly amenities.
Tailoring your marketing message to address these specific needs can attract the right residents who are willing to pay a premium for what they value.
2. Highlighting Unique Features & Finshises: You’re spending millions on your project; now it’s time to show and tell the market all of the thoughtful design decisions you made. Every property has unique features & fixtures that set it apart from the competition.
It could be an elevated appliance package, LEED-certified design materials, or seven-star-level amenities. Effective marketing conveys these features to renters in a meaningful way, creating an amplified perception of added value that can justify higher rents.
3. Leveraging High-Quality Visuals: In today’s digital age, the first impression of a property is often formed online. Highest-quality photography, videography, and virtual tours can significantly enhance a property’s appeal and brand awareness.
Investing in professional photography and videography can make a property stand out, attracting more prospective tenants and allowing for higher rental prices.
4. A Brand To Remember: Your community is so much more than just “luxury apartments,” right? Investing in strong brand development for your project is one of the smartest investments savvy developers can make. Deciding on a name and throwing some typography on a business card is not a brand. For many renters, an apartment is one of their biggest investments. They want to resonate with the place they call home.
Think of the brand Liquid Death, for example. They sell water. H2O. A product that is free in most places, and yet, their current market valuation is 1.4 Billion. All thanks to brand marketing.
Strong creative partners with Multifamily expertise will develop a full brand strategy for your project and collaborate on the best GTM approach to help you win the market.
THE600 featured smaller studio, one, and two-bedroom apartments with limited storage and parking, posing challenges in a fiercely competitive market.
CHARLESGATE implemented a modern, holistic go-to-market strategy, coupled with a comprehensive lease-up playbook derived from extensive market experience and tailored for all seasons, focusing on centralized "on-demand" leasing with skilled on-site sales talent to efficiently lease a building of this size without overburdening property managers.
Leveraging their market expertise and strategic marketing, the team successfully leased this building at an average of $4.50 per square foot, achieving unprecedented rents in the Everett market, with city-view units commanding $5 per square foot, resulting in a remarkable $212k monthly rental income.
It’s important to understand the psychological aspect of perceived value. When residents perceive a property as offering a superior living experience, they are often willing to pay higher rents. Effective marketing creates this perception by emphasizing a property's unique benefits and lifestyle enhancements.
Additionally, scarcity can play a role. If a property is marketed effectively and perceived as highly sought after, potential residents may be more inclined to act quickly, fearing that someone else will snap up the opportunity. This urgency can help maintain high occupancy rates even at higher rental prices.
The belief that higher rents lead to lower occupancy is a myth that effective marketing strategies will dispel all day, every day, and twice on Sunday. A lowball marketing budget on an above-market project means your occupancy will severely hinder your chances of winning the market.
Developers can and do achieve high occupancy rates and high rental prices every day by understanding the target market, highlighting unique features, using high-quality visuals, and implementing data-driven pricing.
In multifamily, as in many industries, perception is reality. By creating and maintaining a perception of high value through powerful marketing, developers can rewrite the old rules and enjoy the best of both worlds: high rents and high occupancy.
This approach not only challenges the status quo but also opens up new avenues for maximizing profitability in real estate. So the next time you consider your marketing spend, think instead about how that ROI will look post-stabilization versus cheapening out and missing your absorption goals.
You’ll thank us later!
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