In real estate, working your way up to a stabilized property takes proper planning and strategic business and investment decisions. Property stabilization occurs when a steady, predictable cash flow has been reached through high occupancy rates.
Typically, stabilized commercial real estate and multi-family properties have a 90 to 95 % occupancy rate and a healthy net operating income.
If you have just gone through a value-add or are in the lease-up period of your property, here is how to build a property stabilization strategy for your real estate investment.
Key Components of a Property Stabilization Strategy
Your property stabilization strategy needs to include four key components:
- A plan to increase occupancy
- Optimization of rent to match market conditions
- Management of expenses
- The ability and awareness are necessary to track the stabilization process.
Achieve Target Occupancy Rate (Plan and Execute)
The target occupancy for a stabilized property is 90 to 95%. Reaching these 90 to 95% rates can take nearly two years if you’ve invested in new construction in the middle of the lease-up process or a property that just underwent a value-added process.
Here are some of the best strategies for achieving target occupancy rates:
- List on popular rental websites like Zillow
- Utilize social media platforms to run ads and acquire leads
- Budget up to 12% of gross potential income to social media during lease-up and up to 5% for stabilized properties
- Provide waived fees, one-month free rent, or referral programs to potential tenants
- Host open houses and create virtual tours online for easy access
- Maintain all exterior and common area properties to the highest level and renovate as necessary.
- Consider flexible lease terms (month to month)
Note that all of the above strategies will help you reach stabilization faster. This is an estimated timeframe for stabilizing your development property, assuming that you’ll implement at least one of the above strategies.
| Stage | Goal | Key Actions | Estimated Timeframe |
| Pre-Stabilization | Achieve basic occupancy (50-70%) | Renovate units, attract initial tenants, and focus on marketing. | 3-6 months |
| Lease-Up Period | Increase occupancy to 80-90% | Aggressive marketing, open houses, promotions, and incentives. | 6-12 months |
| Stabilization | Achieve target occupancy (90-95%) | Optimize rent, secure long-term leases, and retain tenants. | 12-18 months |
| Post-Stabilization | Maximize NOI and operational efficiency | Long-term management, monitoring market trends. | Ongoing |
Rent Optimization
The next part of this process is rent optimization. Stabilized properties optimize the rent of their current and prospective tenants.
Here’s a breakdown of some of the most important steps of rent optimization.
Step 1: Adjust Rent to Market Conditions
Monitor local demand and competition. Use comparative market analysis like PropertyRadar or Mashvisor to ensure you are making data-driven price adjustments before you raise or lower rent.
Step 2: Use Gradual Rent Increases
Once you reach stabilized occupancy, it makes sense to optimize your rent prices at the time of renewal. Rate increases between 3% and 5% are standard and will allow you to maximize NOI.
Step 3: Offer Incentives
Start with incentives like 50% off the first month, especially during periods of high vacancy at the start of a lease-up process. Be strategic and ensure you don’t compromise your new property’s long-term stabilization goals.
Step 4: Conduct Annual Rent Reviews
Study local rent pricing to ensure your rates are competitive using software like AppFolio Property Manager. You’ll also want to pay close attention to occupancy rates for all of your investments.
As an extra precaution, solicit tenant feedback. If the majority of surveyed tenants report negative feedback, rent hikes could have catastrophic impacts on your turnover rate. Conversely, if the majority of tenants report positive feedback, a moderate rent adjustment won’t have a dramatic impact on renter satisfaction.
Expense Management
Reaching target occupancy and optimizing rent prices are two key milestones in any stabilization strategy. While your sights may be set there, you’ll also want to take some time to examine your operating expenses and identify areas for cost savings. Start by identifying anywhere on the property where you could make energy-efficient improvements.
For example, installing LED lighting and low-flow fixtures can dramatically reduce utility costs. Switching to LED lighting in multifamily properties can save property owners up to 75% on energy costs. While installation costs range from $50 to $200 per fixture and $3.20 to $4.00 per square foot, the investment typically pays for itself within 2 years through reduced energy and maintenance expenses.
Property management may be another area where expenses can be decreased. Consider outsourcing maintenance to save on payroll and time.
Some general prices you can expect to pay for outsourcing maintenance include:
- HVAC, Plumbing, Electrical: $75–$150/hour.
- Landscaping: $200–$500/month.
- Pest Control: $50–$100/visit or $300–$500 for full treatments.
- Janitorial Services: $0.15–$0.30/sq ft per visit.
- Painting/Repairs: $2–$6/sq ft or $300–$1,000/unit.
- Snow Removal: $50–$150/visit
Finally, analyze all service contracts.
Sometimes, going with one provider for landscaping, pest control, janitorial, etc, can streamline operations and reduce overall costs.
Capitalize on Ancillary Income Opportunities
In your stabilization process, look for opportunities to accrue additional ancillary income. Renting out storage units or parking spaces can help bridge revenue gaps during the lease-up period. In addition to the additional income, you’ll expose your property to potential tenants. Neighbor.com is a popular tool used by commercial property owners to help fill parking vacancies before a property hits the 95% stabilization rate. Becoming a Neighbor partner is easy. Plus, as you reach lease-up, you can offboard non-resident renters to make room for your new residents.
Tracking The Stabilization Progress
While developing your property stabilization strategy, you must establish goals and tracking. You’ll want to meet target goals for occupancy rates, tenant turnover, and rent growth.
Local market conditions can impact these specific numbers, but use this guide as a starting point.
| Metric | Description | Goal | Target Numbers/Expectations |
| Occupancy Rate | Percentage of units leased compared to total available units. | Achieve stabilized occupancy, typically between 90-95%. | Target: 90-95% occupancy; Goal: 95% occupancy for optimal cash flow. |
| NOI (Net Operating Income) | Total income from the property after operating expenses. | Maximize NOI by reducing operating expenses and increasing rent. | Target NOI Growth: 5-10% increase year over year; Goal: Positive NOI growth consistently. |
| Tenant Turnover | The rate at which tenants vacate the property. | Maintain a low turnover rate, ideally below 20%. | Target: Less than 30% annual turnover rate; Goal: Aim for 20% turnover, national average turnover rate is near 45%. |
| Rent Growth | The increase in rent prices over time. | Gradual rent increases after stabilization to keep pace with the market. | Target: 3-5% annual rent increase (depending on market conditions); Goal: Consistent, moderate increases. |
Common Challenges During Stabilization
As you work on building your property stabilization strategy, be aware of the challenges that you will face. Any seasoned investor in the commercial real estate space has seen their share of expected and unexpected challenges during stabilization.
One of the most common is a slow lease-up period, during which occupancy rates grow slower than expected. This would be a good time to increase marketing efforts and offer more rent discounts. You also may run into issues with high turnover from tenants; using longer leases and offering incentives to stay year after year is a smart strategy.
Be prepared for market fluctuations. Rent prices and demand will change based on economic conditions. Great property managers monitor this closely and adjust the stabilization strategy accordingly.
Final Thoughts
While property stabilization is the ultimate goal throughout the process, it’s important to stay focused on NOI. As a property owner, take advantage of Neighbor (the nation’s leading parking marketplace) as a tool to help increase NOI. Building a stabilization strategy that prioritizes expense management and ancillary income opportunities should make your property stabilization strategy a bit more profitable.
