Reducing Vacancy Rates in Managed Properties

Vacancy rates are a common challenge in multifamily real estate. Property owners should develop effective strategies to minimize this rate so as to optimize their investment returns.

Vacancy rate is the percentage of vacant units in a multifamily property. It represents units that are vacant because a tenant left, as well as those that are not rentable because they require repairs or renovations. Property owners and managers calculate vacancy rate by adding up all vacant units, dividing this number by the total units a property has, and multiplying the result by 100. For example, a property with 200 units, 20 of which are vacant, has a vacancy rate of 10 percent (20/200x100).

Property managers use vacancy rates as a metric to judge how well their property investments are faring compared to similar ones in the market. Vacancy rates above the median rate indicate the property manager is not doing enough to attract and retain quality tenants. Rates below the median mean the property manager has a good investment and is providing quality services to tenants.

According to the U.S. Census Bureau, multifamily properties had an average vacancy rate of 6.6 percent in the third quarter (Q3) of 2023. This was a 13.8 percent increase from Q3 of 2022. The increase was in part a result of a construction boom in several metropolitan areas that brought more apartment units to market.

Western states had an average vacancy rate of 5.8 percent, with New Mexico having a rate of 5.9 percent. While New Mexico’s rate was below the national average, it did represent a 9 percent increase from Q3 2022 and a 13.5 percent increase from Q2 2023. This rising rate underlies the need for New Mexico property managers to take steps to reduce vacancy rates, which are putting a financial strain on their operations (vacant units cost landlords over $1,700 per month on average due to make-ready and advertising costs, as well as higher out-of-pocket payments for mortgages, insurance, and property taxes).

The first obvious way for property managers to reduce their vacancy rates is to retain tenants for longer periods. They can do this by providing quality services, starting with better physical maintenance of properties. Managers should keep buildings aesthetically pleasing, repainting routinely, landscaping yards, fixing leaky roofs, and updating all finishes. They should conduct regular inspections of the property, keeping common areas clean and ensuring electric, plumbing, and heating systems are functional. Well-kept properties attract high quality tenants who also take great care not to damage them, reducing overall repair costs.

Good communication with tenants is another essential strategy to retaining them. Property managers should keep open lines of communication with tenants and be responsive to their questions and requests. Regular engagement with tenants through emails and surveys is also a good idea. In these engagements, managers should be courteous, attentive, and positive.

Other options managers can take to improve tenant retention are adding amenities popular with tenants and creating a sense of community among tenants through events. Offering lease renewal incentives also works.

Inevitably, though, some tenants will leave. When they do, managers should quickly repair and renovate vacant units, getting them to market as quickly as possible. If a tenant notified the manager beforehand of their intention to leave, the manager can start advertising the unit beforehand to minimize the amount of time it stays on the market.

When advertising properties, managers should create unique property listings with detailed descriptions and high-quality photos. If possible, they can provide virtual tours of units as well as tenant testimonials.

When advertisements do generate leads, managers should be thorough in their tenant screening to admit stable and responsible tenants. They should do background checks on tenants to rule out criminal history, review their income status and credit score for financial stability, interview them to find out their rental history, and call previous landlords for referrals.