Apartment turnover—the percentage of total units not renewed each year—fell to 42.1% in April, the lowest level in more than 20 years, CBRE’s Jeanette Rice says in a new report. Although there has been a long-term trend toward declining turnover anyway, it has accelerated recently due to fewer tenants moving because of the COVID-19 economic downturn as well as lockdown mandates.

Turnover fell by 120 basis points year-over-year to 47.5% in 2019, according to RealPage. For the seven major multifamily REITs, turnover also fell by 120 bps Y-O-Y to 48.7%, based on trailing four-quarter averages for the quarter ended March 31. UDR was the only major REIT without a drop, says Rice; its turnover rate was essentially unchanged.

First-quarter turnover also went against an historical trend, although only two weeks of Q1 fell within the COVID-19 period. Turnover usually rises each spring, but declined this year due to lockdowns and economic concerns.

Benefits of lower turnover generally outweigh disadvantages, Rice points out. “Benefits include cost savings from continuation of rent income and from lower turnover ‘make-ready’ expenses. The National Apartment Association estimates that turnover costs average about $1,800 per unit, and can easily rise to $3,000. Another advantage is that effective rent increases on renewals are generally higher than from new leases generated from vacated units.”

Higher turnover can be advantageous when the market or product segment is achieving high rent growth. At those times, owners may be able to obtain more rent growth from new leases than from renewals.

In the current environment, especially, says Rice, “Low turnover is helping owners maintain occupancy and cash flows.”

That leisurely pace isn’t likely to last, though. “Over the next few months, turnover will likely rise from April’s low level given the acceleration of leasing activity in May,” Rice says. “Yet, through 2020, turnover should still be lower than last year.”

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