How to Approach Renewal Trade-Outs This Fall

As we begin to enter a lower season while still dealing with the effects of the COVID-19 pandemic and concomitant recession, we thought it would be a good idea to take some time and focus on renewals.
With new rents declining in new markets even during this past summer and thus almost sure to decline more at least until next spring, renewals and renewal rents are even more important than ever. So when is it ok to keep renewal increases flat versus giving minimums? And are there times where we would actively offer rent decreases in our renewal offers?
In normal times, most operators implement a 1-2% minimum increase. At the start of the recession, most operators went to flat renewals. But now that we’re almost six months into the recession, what should we do?
As with most strategy questions, there is no one single, “right” answer. The choice depends on owners’ objectives, operating culture and sensibilities around where rents are likely to go. That said, here’s what D2 Demand is recommending to its clients.
The case for renewal increases
If you haven’t done so already, we do recommend going back to renewal rent increases where market conditions justify them. In past recessions, renewal rents outperform new rents; however, this time, early renewal rent freezes, coupled with the surprising maintenance of demand in many secondary and tertiary markets resulted in the reverse. Most operators we know have gone back to renewal increases, albeit often with lower caps than before. We strongly supp……