Multifamily Pet Utopia - as imagined by Midjourney AI

As multifamily rent growth stalls, investors seek alternative strategies to increase revenues. Enter dogs – a human's best friend! Pet revenue, primarily from dogs, represents a largely untapped market that may significantly contribute to the bottom line.

How much of a difference? Adding our furry friends can increase property values by up to $3.5m for a 300-unit property – a 4% increase. Assuming 60% leverage (debt), a 4% increase in value translates into a 10% return on equity (4% increase divided by 40% of purchase price).

Why pets? Pet ownership has increased from 56% to 70% from 1988 to 2022 and has accelerated through the pandemic. But, more importantly, this shift in absolute numbers has turbocharged a more significant trend – the humanization of pets. No longer is "the dog" outside in a kennel. Instead, Luna (the most popular name in 2022) is part of the family. If consumers consider their pets part of the family, a type of surrogate child, their willingness to spend can sharply increase.

The Pet Apartment Market Today

Today's pet-friendly apartment market reflects an acceptance of dogs as an essential component of tenants' lives. As a result, tenants' tastes have changed, and the market has adjusted to reflect these changes.

However, three distinct categories can be observed. First, most apartment buildings fall into the pet-tolerant category, where policies have been adjusted to cater to the average tenant, who now has a furry friend in tow. These properties charge pet rent and see it as an additional amenity income category. Some pet amenities, such as a pet park or perhaps a dog washing station, maybe in place. Between 20% and 50% of the community will have a pet, though pet rent collections are lower due to ESA (emotional support animal) exemptions and non-compliance by tenants.

The second category is pet-free properties. These properties have no tolerance for the increased services required to maintain an active pet population, such as more frequent cleaning of common areas and pet screening procedures. The increased pet revenue potential fails to convince these skeptical owners.

The third category is pet-friendly, which are true believers in the pet trend. These properties are laser-focused on the pet owners and meeting their every need. Amenities are planned and upgraded based on the dog trends of the day. While thorough in application, pet screening remains flexible to various breeds and larger dogs that are typically not permitted in pet-tolerant apartments. Pet-friendly properties can command higher pet rents in exchange for these superior amenities, policies, and community.

Future Pet Paradise

The future of pet-friendly apartments will be a bifurcation of the market between pet-friendly and pet-free buildings. The vast middle ground will become narrower as owners and managers draw clearer lines around their pet-friendliness policies. The future will offer multiple strategies for success, but passive tolerance will diminish as a viable alternative. Proactive real estate investors can escape the sameness of apartment commoditization.

Pet Paradise

These properties want 100% of their units to have pets. Therefore, the residence's primary focus will be on pet owners and their furry friends. The following steps become clearer when your target market is clear, and their happiness is paramount.

Each portion of the dog's daily, weekly and monthly activities will be facilitated and improved by the property and its proactive approach. Entry requirements will move from the breed and weight restrictions (both abolished) to pet interviews, with third-party companies taking your dog through a two-hour behavioral test for $100, which may replace the application fee.

Daily walks can be optimized with multiple on-site dog parks. Current parks are typically bifurcated by size (large dog park plus a separate smaller dog park). Future dog parks can be broken down by energy level and socialization preferences. For example, timid dogs may have a different dog park with more individual spaces as they adjust to higher levels of socialization.

Dog community events can include grooming days, group training classes, vet open days (for minor questions or quick check-ups), etc. The pet-friendly community of the future takes a holistic approach to pet care.

Facilities may include dog park(s), dog washing/grooming stations, and pet relief stations for every unit (balconies, terraces, or gardens). Additional may include pet concierge services, discounted pet products/services based on preferred partnerships, dog walking services, and doggy daycare.

Pet Paradise properties won't charge pet rent but will command prices that exceed the equivalent rent plus pet rent. Additionally, renewal rates will be higher – residents in pet-friendly housing stay 21% longer than those in non-pet-friendly housing, according to the Pet-Inclusive Housing Initiative 2021 report by Michelson Found Animals, a non-profit. It will be difficult for dog owners to return to pet-tolerant communities – it would be like flying economy after two years of business class travel. The relatively affordable luxury experience will be challenging to abandon.

A survey of 448 prospective renters commissioned by Tenney 110, the venture studio where I work as an Entrepreneur-in-residence, illustrates the commercial potential of multifamily pet trends. Survey participation was limited to those looking to move apartments within six months and who spend at least $100 per month on their pet - i.e., the target market for multifamily owners/managers looking for premium pet pricing. It found that 69% of renters were willing to pay more than 5% for an apartment that "meets all of your needs but also your pet's specific needs" vs. "an apartment that meets all your needs and is pet-friendly in general." In addition, 20% of survey participants were willing to pay more than 15% for the more pet-friendly option. These results illustrate the conviction of the core pet-friendly renter demographic and the market potential for those multifamily communities looking to take advantage of this opportunity.

An additional benefit of abolishing pet rent and increasing base rents is avoiding the ESA letter issues that remove multifamily owners' ability to recover rents. No more administrative challenges!

Pet-Tolerant

Pet-Tolerant communities will continue to exist. While they permit pets, their primary focus won't be on pet owners. They will either have a separate non-pet-related primary market, or they will fall into the sameness of commoditized pricing. The pet market is not the only differentiator on offer; many opportunities exist to capitalize on emerging trends in multifamily, which as focusing on remote workers or fitness enthusiasts.

Pet-Free

Some people will never like pets and may pay a premium to avoid them. Such customers can be satisfied with the approximate 20-25% of communities that don't allow pets today, though this may increase as some renters react negatively to the increase in dogs at their property.

Conclusion

The future looks bright for dogs, their humans, and multifamily owners. The long-term trends of increased pet ownership, higher spending per pet, and increased competition amongst multifamily communities will create a new niche market of pet utopia apartment buildings.