Many markets are being saturated with new apartment buildings, and developers in some of the most popular markets are now finding they need to offer incentives to tenants in order to fill growing vacancies.
After years of rental hikes, tenants are now finding themselves in the driver’s seat as more landlords look to aggressively court them. Some developers reportedly are offering new residents a month or two of free rent or free parking, according to the CoStar Group. For existing tenants who renew their leases, offers of a free month of rent, an apartment upgrade, or no increase to their rental payment are becoming common.
“There was a refreshing and short period of time when concessions went out of the market,” Lynn Bora, vice president of operations at Winn Companies, the owner of nearly 100,000 apartments nationwide, told the CoStar Group. “Now, concessions are back with a vengeance.”
The trend is not just centered in the high-end market, but rather in any area that has seen a wave of multifamily development over the past few years, the CoStar Group reports. For example, Nashville has recently boosted its supply of apartments by 30 percent. Many developers there are reportedly offering one or two months free rent for lease signers in their new buildings. They’re also taking the added step to reduce rents for some existing tenants. Oversupplied markets will likely see more rent concessions and slower rent growth, says Kyle Dupree, senior vice president of asset management at LaSalle Investment Management in Chicago.
However, Bora at Winn Companies notes that concessions have not yet forced them to decrease their asking rents in the long term. Property owners are seeking to stabilize their properties and meet occupancy levels, particularly in the face of more new buildings on the market. But as buildings fill up again, analysts expect rental costs to be back on the rise then.
Nationwide rental growth has slowed to about 2 percent annually; it was averaging more than 5 percent, the CoStar Group reports. "The data clearly shows that rent growth has slowed from the highs of 2015," says John Affleck, CoStar’s director of analytics. "But 2015 was a rare year, when demand for housing, thanks to a healthy economy, far exceeded housing construction. Since then, developers have responded, and rent growth has fallen to long-term trends. But what we’re seeing is not a hard landing—it’s a return to normal."
Source: “Apartment Rent Concessions Are ‘Back With a Vengeance’,” CoStar Group (May 25, 2018)
