Magazine article Journal of Property Management

Opportunities, Challenges Will Abound in 2018

Magazine article Journal of Property Management

Opportunities, Challenges Will Abound in 2018

Article excerpt

THE CONSENSUS AMONG PROPERTY MANAGEMENT SPECIALISTS AND OTHER REAL ESTATE SERVICES PROFESSIONALS IS THAT 2018 WILL BE ANOTHER STRONG YEAR FOR REAL ESTATE GENERALLY, although the industry seems to have passed the peak of the "up" cycle. Conceivably, a downturn is lurking, but it's not immediately in view.

The outlook for residential real estate shows increasing demand for Class B and C product. While demand is also high for Class A, that's where most of the new development has been, and supply might have outpaced demand in some markets. Managers of industrial property can expect good business in 2018; retail and office are both mixed bags. Commercial managers might face challenges in keeping their properties fully leased, depending on local conditions.

Increasing demand for apartment space is good news for property managers, since demand for their services will stay high in most markets. But with that demand will come pressure to keep both occupancy and service levels high. Rent growth is inevitable, and residents will expect more, and more efficient, services to justify what they're paying.

Property managers might enjoy working with the larger, more luxurious apartment buildings that are proliferating in major cities, but their skills will be tested. Probably the best advice for property managers in the current climate is to seek the difficult jobs, and welcome the challenges, because the best professionals are in a position to cash in on market conditions.

JOSEPH GREENBLATT, CPM, CEO OF SUNRISE MANAGEMENT, AMO (San Diego), said that the national economic outlook bodes well for real estate, and thus for the property management industry. However, he warned that managers will be under pressure to provide added value.

"We're already into our budget preparations for 2018, creating guidelines, trying to understand where the apartment business is going. We're doing not just 2018 budgets, but five-year forecasts. We're seeing good employment data, which tends to drive housing demand, so we pay attention to job formation and job growth. Things are looking pretty rosy overall for multifamily. This will be another strong year, on a local basis anyway. Broadly, we'll see moderation in rent and income growth. Some of that is driven by a failure of incomes to keep up with rent growth and affordability. In some cases, supply will outstrip demand in the short term, but broadly, continued strong occupancies, as they're measured nationally, will decline to a more healthy and typical 95 percent, from today's hyper-high 97 to 98 percent. But in most markets, occupancy will still be strong, with reasonable expectation on the part of investors and owners that they'll be the beneficiaries of continued rent growth.

"As rents climb, residents will have an increasing expectation of value. We can't use the Harry Potter room expander and make their apartments bigger, so there'll be pressure on managers to deliver high-quality service and meet resident expectations in terms of the basics of maintenance and repair. Managers will have to pay attention not only to core customer service components, but also to technology: the ability to pay rent, execute leases and process work orders online. That's where a lot of the burden of offering enhanced value will fall. There will be pressure to maintain properties better and update amenities so that residents don't experience a disconnect between the value and the rent."

As for which markets will perform best, Greenblatt said he's concerned overall about the Western states, which may be slightly too well supplied. Demand, he added, will be increasingly concentrated in B and C product.

"The trouble spots are markets like Houston, where supply zigged when demand zagged," he said. "In Seattle, the economy has been performing at an extraordinary level for years, but if there's any kind of a hiccup there, I don't know how they'll support all the development. …

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