While talk of inflation, rising interest rates, supply chain abnormalities, labor shortages, and recession dominate the residential real estate conversation, surely there are opportunities for property management businesses in the year ahead.
To provide property managers with a way to see if their experiences in today’s economy match those of their peers in other industries, AppFolio surveyed nearly 5,000 employees at U.S.-based property management companies to create the annual AppFolio Property Manager Benchmark Report. This year — 2023 — is the inaugural year, and here’s a high-level view of what they found:
Despite economic pressure, it’s a great time to own or manage residential rental property.
Benchmarks by company size
Risks
Across the residential property management organizations surveyed that manage 50-499 units, 500-5,000 units, and more than 5,000 units, nearly half — 46% to be exact — believe that inflation and delinquencies are two of their biggest risks in the coming year.
These groups vary most significantly when it comes to the challenge of retaining current employees. AppFolio’s research shows that property management companies that manage 50-499 units have less than one-tenth of the employees of companies that manage more than 5,000 units (16 employees vs. 184). As a result, employee retention is a more common challenge among larger organizations that have more employees and more specialized roles.
Opportunities
Despite the inflation risk, delinquencies, and staffing challenges, the research shows that property management companies see tremendous opportunities for both expansion and improvement in 2023.
In terms of expansion, 55% of property management companies surveyed, regardless of size, believe that adding new units to their portfolio is their biggest opportunity. Of the companies surveyed, 53% managing 50-499 units believe this to be the case, as do 60% of companies managing 500-5,000 units and 61% of companies managing over 5,000 units.
Meanwhile, companies managing 500-5,000 units and companies managing over 5,000 units cited hiring additional staff as their third greatest opportunity (44% and 45%, respectively), while property management companies managing 50-499 units ranked it fourth (31%).
Overall, property managers are looking to become more efficient, specifically aiming to streamline and automate operations, which ranks as the third greatest opportunity for property management companies with 50-499 units under management (31%). It ranked as the fourth greatest opportunity for companies with 500-5,000 units under management (34%) and for companies with over 5,000 units (37%).
Streamlining and automating operations
The survey shed light on the fact that there’s a high level of agreement across all businesses sizes in the opportunity to streamline financial functions for residents and their business. All three business sizes cited processing more rent payments online as an opportunity. This trend was mirrored in the opportunity to improve the accounts payable process.
Property management organizations with more than 5,000 units under management are more likely to use every type of property management technology. But as organizations with 50-499 units under management and organizations with 500-5,000 units under management review their opportunities to streamline operations, they’re likely to examine the benefits of technology designed to serve specific functions — particularly if they’re able to integrate those solutions directly into their existing property management platform.
Financial outlook
Despite the business risks they face, property management companies of all sizes believe there is great upside in the opportunities they’ll have regarding revenue and income. There’s a lot of optimism about 2023 revenue increases as business size increases, so much so that not a single large business survey respondent expects revenue to decrease in 2023. In fact, 81% of all of the residential property management companies surveyed expect revenue to increase.
Of the companies surveyed with over 5,000 units under management, just 1% believe that they'll face an NOI decrease, while 81% expect it to increase. Of property management companies with 499-5,000 units under management, 4% expect revenue to decrease while 74% foresee an increase. Of property management companies with 50-499 units under management, 6% expect revenue to decrease while 69% foresee an increase.
To learn more about the financial outlook for property management businesses and the best ways to streamline operations in 2023 and beyond, check out the full report.