The property management industry is complex, but in simple terms you want to increase rents where possible, increase lease renewals, maintain high occupancy levels, be highly efficient, build relationships, provide exceptional customer service, and ruthlessly keep costs down.
There are roughly 300,000 property management companies in the United States. The addressable market size is nearly $90 billion with no major players with a market share of greater than 5%. The industry is highly competitive making relationships and customer service invaluable intangible costs. Typical services provided by property managers include rent/fee collection, leasing, maintenance, property inspections, marketing vacancies, evictions, cleaning, purchase/selling properties, etc.
In general, demand tends to be countercyclical in nature. During an economic downturn, demand for residential rentals increases whereas demand softens during an upswing, but commercial properties become more important during this phase of the economic cycle.
Demand for dwellings is driven by the household formation rate which is underpinned by population growth, job/income growth, and demographics. There are roughly 325 million people living in the US in 118 million dwellings. This is further broken down between 36% renters and 64% owners. Of the 36% renters, roughly 37% are single-family, 42% are apartments, and 21% categorized as other. In spite of these trends, rental demand is expected to be strong as a result of the affordable housing shortage and the population of ages 35 and under growing faster than the general population.
Some of the factors leading to the affordable housing shortage include high student loans (average $37,000), stringent credit requirements, rent outpacing wage growth, high home prices, and young adults delaying getting married or having children. This has led to people renting later in life coupled with a more diverse group of renters. As a result, a one-size fits all approach is unlikely to work, whereas a more personalized and customizable experience is preferred. In turn, this has caused many property managers to invest in technology to meet these needs.
A recent trend that has occurred is portfolio shrinkage for property managers. This was due to newly built rentals flooding the markets, high home values causing accidental rental landlords to sell their properties, and investors slowing their pace of acquisitions. These factors have caused larger property managers to acquire smaller firms.