Why are apartment rent concessions back on the rise?

Owners and investors in the multifamily building market have seen increasing saturation. To compete, they can either deal with low vacancy or they can do what most others do – offer specials to new tenants.

According to Lynn Bora, VP of Operations at Winn Companies, there was a short period in which these concessions had stopped but now they are “back with a vengeance.”

Concessions like a free month of rent were typical in higher-end apartments to stabilize occupancy levels but in the past few years, apartments for every economic level have made concessions commonplace to compete for occupants.

Not only are free months of the rent becoming more popular as signing bonuses, so are reduced rents – even in the most saturated of submarkets that have more developments in the works.

Many in the industry believe that apartment living is more popular with the millennial generation who are priced out of current real estate markets and aging baby boomers who can no longer manage the maintenance required by home ownership.

Some industry insiders feel that reduced rents and concessions will end in the next couple of years while others believe that they are here to stay in over-developed areas like Nashville.

The risk for investors has increased since many of their projects are based on realistic occupancy rates but not the annual percentage of income from rent that is given away through concessions to tenants.

Despite clear data showing increasing in rent for the past few years, what many expect to happen is a slowing in rent growth rates overall to compensate for the overuse of concessions.

What is next for this heavily elastic market?

Source: CoStar Group