Is Your Property Everything You Think it is?

Leaving money on the table by setting rents too low is the last thing any apartment property owner wants to do, but pricing yourself out of the market can lead to vacancy problems and bottom-line issues. So what is the market position of your property? How do you know if your rents are set right? How do you measure and test rents?

Knowing your market position enables you to make many key decisions about your property, from making improvements to setting rents. The best tool to identify your market position is the market survey.

Market Survey Goals

Market surveys have the following goals:

1. Determine the market position of your property relative to competitors.
2. Identify and understand the positives and negatives of your property.
3. Identify demographic or geographical factors affecting your property.
4. Determine ways for your property to achieve improved market position.
5. Determine appropriate market pricing for your property.

Collecting Data in the Field

Just as every parent imagines their child will blossom into the next great hockey star, property owners often don’t see their properties as a renter sees them. Conducting a market survey is best done by an objective third-party company employing data collectors who do not know or work for the property owner. Data collectors should gather data in the field, posing as renters, which provides a renter’s perspective on your property and is more useful than raw data gathered via telephone, internet, or real estate listings. This approach allows data collectors to make observations which generate assessments and recommendations aimed at improving the overall appeal of a property in the eyes of renters.

When surveying a building, data collectors should keep the following rules in mind to ensure data is consistent:

• Make observations which a typical renter would make, without special inside knowledge.
• Collect information a typical renter would be able to gather, without inside access (do not collect information for which a typical renter would not have access, assuming a basic level of questioning and inquisitiveness).
• Information not available to a typical renter includes vacancy data, resident rent rolls, staff commissions, overhead costs, etc.

Conducting a Market Survey – Questions to Ask

When conducting a market survey, data collectors and property owners should answer the following questions:

• Location – What is good or bad about your location? What local amenities benefit your renters? Is your property located in a good neighbourhood?
• Curb Appeal – What sort of street presence and visibility does a property have? Is the property attractive to renters? Will renters be encouraged to enter the property?
• Signage – Does signage attract the attention of renters and encourage them to enter the property? Does signage promote the best features of a property? Does signage reinforce the property owner or manager’s brand?
• Marketing – What types of advertising and support documents are used to promote the property? Are these effective? How can they be improved?
• Leasing Agents – Do leasing agents have professional sales skills? Where do they fall short? Do they need training? Which competitors have the best leasing agents in the market? How do your leasing agents compare?
• Amenities – What sort of amenities are offered? Are they in good condition? Do they match the needs of target renters? How do competitors in the market compare?
• Apartment Units – Are units in good condition and do they appeal to renters? Would renters want to make this their new home? How do your units compare to competitors in the market? Are your units priced appropriately for the market?

Selecting Competitors

Competitors should be selected based on the comparability of a given property with your property. In other words, your property should only be compared with properties and units that are roughly similar in quality, appeal, and configuration. For example, there is no point in comparing your B-class building with the D-class building across the street, nor is there any point in comparing your 1 bedroom units with 3 bedroom townhouses down the street—these appeal to different markets.

Another way to select competitors is to restrict yourself to a defined geographic area. For example, don’t compare your property in Etobicoke with a property in Richmond Hill, since the two cities have completely different markets with different renter profiles.

Ultimately, data collectors and property owners must use their best judgement when selecting competitors and keep in the mind the renter’s perspective.

Data Analysis

Once data has been collected, it is time to start data analysis. At this stage comparisons between your property and competitors are made to identify the market position of your property (compared to competitors) and to determine how your market position can be improved and rents adjusted for the market.

The focus of data analysis should be on comparing rents and amenities, although other factors such as unit sizes, utilities, and parking fees should be included. Data should be tabulated for ease of use. From this analysis, you should be able to answer the following questions:

• Which is the “best” building in the market?
• Which is the “worst” building in the market?
• How does my property rank compared to the above?
• What improvements can I make to increase my property’s rank (if possible)?
• What are the appropriate rents for each unit type in my property?
• What are the appropriate utilities and parking fees for my property?

In addition to analyzing your property in relation to your competitors, you should also analyze the following market factors (where appropriate):

• What is the impact of “specials” and rental incentives on the market and the competitiveness of your property in the market?
• What is the impact of condominium rentals on the market and the pool of renters available to your property?
• What is the profile of the target renter in this market? (use demographic and economic data, subject to availability)
• What future market trends are expected? (use CMHC reports)

Final Thoughts

Studying the market with objectivity will enable you to better understand your position in the marketplace.  This will lead to rents that are reflective of market conditions, lower vacancy rates and an overall improved NOI.

Derek Lobo is the CEO of Rock Apartment Advisors Inc.,a boutique apartment brokerage firm and Derek A. Lobo & Associates Inc., a performance-based consulting firm with its sole focus on the apartment industry. If you would like to learn more about conducting market studies, please contact us: info@rockaptadvisors.ca.