Tenant concessions, ranging from free rent to complimentary carpet cleanings to distribution of gift cards, have become the norm in Houston’s multifamily market over the last few years. And according to several industry experts who spoke at the InterFace Houston Multifamily Conference on March 28, it’s the millennials who are taking advantage of them.
Houston has become an especially attractive destination for millennials in recent years. According to a survey by JAXUSA Partnership, which tracks demographic trends throughout major metros, between 2010 and 2013, the metro ranked sixth in population growth of residents age 20 to 29.
Tenants receive fewer concessions in submarkets without a lot of new construction. In Houston, this primarily means suburbs — The Woodlands, Pearland, and Katy. In submarkets closer to downtown, where there is generally more construction, concessions have come to serve as bargaining chips for prospective renters.
For Houston landlords, operating in a market where concessions have become standard has made lease renewals harder to come by. Stacy Hunt, executive director of multifamily development and management firm Greystar, sees a direct correlation between millennials and lease renewals.
“Properties in [sub]markets where you have a lot of millennials — Downtown, Heights, Washington Avenue — it’s tougher to renew them without giving them a deep concession,” said Hunt, a conference panelist.
Speaking to a crowd of 175 real estate professionals at the Royal Sonesta Hotel, Hunt explained that tech-savvy millennials are informed about market rates for apartment rentals, and won’t hesitate to invoke them in negotiations. In a joking manner, he also noted that their lack of material possessions makes it easy for them to pick up and move at will.
Jenifer Paneral, regional vice president of Pinnacle Property Management, notes that this itinerant lifestyle is wreaking havoc on landlords’ books.
“Turnover is a huge component of the expense side,” she said. “We’re really trying to keep our current residents in place, but it’s very challenging with all the competition and concessions.”
Ricardo Rivas, principal and chief investment officer at Allied Orion Group, echoed Hunt’s sentiment that landlords have little recourse but to yield to tenant demands.
“We’ll have people coming in who will say, ‘My friend is getting this much or that much for the rent, and we’re not going to renew unless we get the same or less,’” said Rivas. “At the end of the day, in a down market, we have to give in and discount the rent.”
According to Cushman & Wakefield, roughly 18 percent of the metro’s current population, or about 1.5 million people, are millennials. Another 128,000 are projected to settle in Houston over the next five years.
This means that until multifamily construction levels off in 18 to 24 months, reducing supply and enabling rent growth to resume, multifamily developers in Houston must get creative to attract and keep millennials at their properties.
As such, developers are considering new amenities that are especially geared toward the younger crowd. These include offering bar service in the lobby and offering full-scale package handling services. In the age of e-commerce, the latter is a particularly popular feature, says Rivas.
— Taylor Williams