Apartment Concessions Undercutting Rising Rents

Residential rental concessions are hitting a two-year high with 30% of listing offering at least one concessions, according to Zillow based on its own rental listings. The previous recent high was in February 2021, where 37% of listings offered concessions.

Because the data set is all through Zillow, it would be considered self-selected and so unlikely to be statistically representative of the entire country. However, it also is a large number of rental listings and not something to be ignored offhand.

There has been an ongoing trend this year of more landlords and property managers relying on concessions as a marketing technique. They work with the assumption that resulting downward pressure on realized rents is worth the tradeoff for lowering vacancy rates and maintaining revenue.

Zillow’s own data showed that 23% of listing in January 2023 offered concessions like some number of months in free rent or parking. That continued to move upward to 28% in March before sliding to 25% in June. But then the percentages keep climbing to the current number.

Of the largest 50 rental markets in the U.S., 43 had more rental concessions this year than in 2022. “Concessions are often rising most in markets where multi-family construction is booming,” the report said.

In March 2023, a report from Berkadia showed how concerns about slowing apartment demand and falling apartment rental rate growth was manifesting in concession and lease renewal dynamics.

Redfin in September 2023 had an analysis on how multifamily rents were still incredibly high in an historical setting and yet creating the conditions for concession costs.

“A year ago, you really didn’t see concessions in the market. Fast forward to today, and they are far more common, with landlords offering from one to three months free in an effort to attract new tenants without lowering their asking rents,” said Jon Ziglar, CEO of Redfin-owned RentPath, in prepared comments. “Higher-end properties are beginning to see pressure in certain markets as a significant portion of new units coming online are in the higher end and luxury segment. We are still seeing a lot of competition for more affordable units due to less new supply, as well as increased pressure on consumer wallets limiting the ability to stretch for that higher level experience.”

“Zillow’s rental market report shows 3.2% year-over-year rent price growth in October, much closer to normal 3-5% annual growth than the peak of 16.9% in February 2022,” the company wrote. “Though October was the first month since that peak where annual rent growth accelerated, it remains to be seen whether this is the beginning of a recovery in annual rent growth back toward longer-term averages, or more of a stabilization. More rentals offering concessions may be a signal that rent growth is set to level off.”