What forces will shape the rental market in 2024?
Are you planing on investing in rental properties in 2024? If so, like most investors, you’re probably wondering what forces may shape the rental market, especially considering that it’s going to be an election year.
In this article, we will answer this question by providing you insight into what forces will have the most impact on the rental market in the coming year.
What Will The Rental Market Look Like In 2024?
Throughout 2022 and 2023, more apartments have been constructed in markets across the U.S. than we’ve seen since the 1980s, particularly in hot Sun Belt cities like Phoenix and Austin. Deliveries will remain elevated throughout 2024, with more than 600,000 new market-rate apartments expected to come online. This will put downward pressure on rents until 2025, when apartment completions are expected to slow.
So, where are property managers and investors finding stronger rent growth and higher cap rates? In the new year, we’ll be looking to smaller cities with less new construction, particularly in the Midwest, Mid-Atlantic, New England, and South Central regions of the U.S. Check out our list of 60 up-and-coming markets to watch in 2024.
2. The population of Accidental Landlords will increase as the housing market remains sluggish, motivating more sellers to rent out their homes.
Accidental Landlords—rental owners who acquired their rental properties due to circumstance, and don’t consider themselves investors—are on the rise for the first time since 2018. Why? A stagnant housing market is motivating some potential homesellers to rent out their properties rather than putting them up for sale, at least until conditions turn more favorable.
In 2024, investors will continue to represent the majority of rental owners currently in the market. However, property management companies should expect to see an increase in the number of Accidental Landlords within their client base—particularly because Accidental Landlords are the most likely to seek out a property manager’s help in running their rentals.
3. Investors will remain reluctant to acquire new properties as home prices and mortgage rates remain high, coupled with low inventory.
Though 66% of small-portfolio rental investors continue to see residential rentals as a smart investment at this moment in time, just 35% actually plan to add new rental properties to their portfolios in 2024 and 2025. This is unlikely to change as long as mortgage rates remain high, and as low inventory in the housing market keeps home prices elevated.
The good news is that among rental owners who don’t plan to grow, the vast majority plan to stay the same size, whether by holding onto their current properties or by selling some off while acquiring new ones. Those who plan to sell off properties without replacing them are in the minority, with just 13% planning to downsize their portfolios in the next two years.
4. Third-party property management companies will turn to new expansion tactics rather than relying on clients’ portfolio growth.
Traditionally, a majority of third-party property management companies have grown their portfolios by encouraging their clients to acquire new properties. 46% of companies still plan to do so in 2024 and 2025—but with a minority of rental owners planning to acquire new properties in the next two years, other portfolio growth tactics are increasing in importance.
What are those alternative tactics? First and foremost, 71% of companies will be focused on recruiting new, growth-oriented clients. But about a third of companies will be turning to acquisition strategies, such as acquiring other property management companies or investors’ portfolios, or purchasing or building new properties of their own. In addition, a third of companies will expand the types of properties they manage, or the geographic regions where they operate.
5. Competition from real estate agencies will be steep as the housing market remains slow and the effects of the lawsuit against NAR unfold.
Throughout 2023, property management companies faced competition from real estate agencies compensating for the sluggish sales market by dabbling in property management. To put this slow market into perspective: As of March 2023, there were 1.5 million Realtors, but just 563,000 homes for sale.
The competition will likely grow worse in 2024. Not only does the sales market remain slow, a lawsuit against the National Association of Realtors threatens to push more than half of real estate agents out of the profession. Much about the case remains uncertain at the moment, including a potential appeal by NAR; but it wouldn’t be surprising to see more real estate agencies expanding into rental property management to shore up their revenue going forward. Property management companies can respond by showing their expertise and delivering the personalized, tech-enabled service that has always differentiated them from the competition.
6. Companies will continue to focus on improving efficiency through technology as profitability remains strained amidst a lingering labor shortage.
Between elevated costs for materials, labor, taxes, and insurance, plus the ongoing worker shortage, property management companies are heavily focused on operating as efficiently as possible. These conditions make it all the more critical that companies find the right technology to help them spend less time processing payments, leases, maintenance requests, and reports so they can focus on growth and meaningful customer interactions instead.
Which technologies will allow them to accomplish these aims? First and foremost is property management software like Buildium. In addition, 25% of property management companies currently employ virtual assistants to help them extend the capabilities of their team, most often in roles involving accounting, leasing, maintenance, marketing, and admin work. Some companies are also testing out artificial intelligence tools like ChatGPT to help them generate text for rental listings, social media posts, communication templates, and website copy.
7. Renters and rental owners will expect rental processes like payments, maintenance, and communications to be seamless.
Over the last two years, we’ve witnessed a sea change in renters’ and rental owners’ level of comfort with technology. Today, 95% of rental owners—particularly investors—would like to do business with their property management company online. This includes sending and receiving payments, signing documents, viewing reports, and communicating with their property management team.
In addition, 90% of renters would like to complete rental processes like paying rent, submitting maintenance requests, signing leases online, and communicating with their property manager online. This preference cuts across generations, with even 72% of the oldest renters expressing an interest in online rental processes. This creates an opportunity for property management companies to differentiate themselves from the competition through the use of technology.
Source – Buildium
Contact Portland Rental Management
At Portland Rental Management, we specialize in local property management for the Portland Oregon area.
Our team specializes in a wide variety of property management services including rent collection, maintenance, accounting, customer service and more.
Stop wasting time managing your property yourself, learn more about the services we can offer you by calling us at (503) 791-4610 or click here to connect with us online.