In the multifamily housing market, there’s a quiet shift taking place. Rent growth, which soared for much of the past few years, is beginning to slow. But while prices have stabilized in many cities, property owners are now increasingly turning to a different strategy to attract tenants: rent concessions.
Rent concessions—those tempting offers like a free month’s rent, waived move-in fees, or complimentary parking—are becoming more common across the United States. According to recent data from Zillow, concessions were offered in 40 of the 45 largest metro areas in July 2024, marking a notable increase from the previous year. One in three rentals listed on Zillow in July offered at least one concession, up from one in four the year prior. For property owners and investors, understanding this trend is essential to navigating today’s multifamily market.
What Are Rent Concessions?
Rent concessions are incentives offered by property owners to entice prospective tenants into signing leases. These incentives can take many forms, ranging from free rent for a certain period to waived application or parking fees. Sometimes, it could be offering an upgraded unit for the price of a standard one, or covering utility costs for a set period. The goal is simple: sweeten the deal for tenants without having to lower the headline rent.
Concessions are not a new tool, but they tend to rise when there is more competition in the market. When demand for rentals slows or supply increases dramatically, property owners may struggle to fill vacant units. Offering a rent concession is a way to stand out in a crowded market.
The Surge in Concessions: What’s Driving It?
Several factors have contributed to the recent rise in rent concessions across major metro areas. Chief among them is the surge in new apartment supply. Over the past couple of years, developers have been racing to meet the demand created during the pandemic housing boom. As a result, a significant number of new apartments have come online, particularly in urban areas, creating more competition among landlords.
Zillow’s Observed Renter Demand Index (ORDI), which measures market tightness, reported a 23.3% decline from July 2023, but this drop is less about a demand reduction and more about the large influx of available units. The non-seasonally adjusted rental vacancy rate has held steady at 6.6% since 2021, which further underscores the fact that it’s not demand that’s slipping, but supply that’s ballooning.
With so many units available, property owners have had to get creative to fill vacancies without slashing rents. Concessions have emerged as the solution. They offer a way to keep rents technically high while still making leasing attractive. Tenants might be lured in by a free month of rent or a reduced security deposit, even though the listed rent has remained unchanged. This allows property owners to maintain the integrity of their long-term rent levels, which is critical for valuation and future lease negotiations.
The Impact on Renters
While concessions can be appealing to tenants, they are also a reflection of the broader affordability struggles that renters continue to face. Despite the slowdown in rent growth, the typical asking rent in the U.S. hit $2,070 in July 2024, up 0.4% from June and 3.4% from a year ago. In 48 of the 50 largest metro areas, rents have risen compared to the same time last year.
Affordability remains a key issue. The report highlights that a household earning the median renter income now spends 30% of that income on rent—right at the threshold of what is generally considered affordable. Although this marks an improvement from the more challenging conditions of 2022, it still leaves many renters in a precarious position. The income required to comfortably afford the typical U.S. rent, without spending more than 30% on housing, is now $82,795—a figure out of reach for many households.
Regional Variations in Concessions
Concessions are not uniform across the country; they are a hyper-local phenomenon. For instance, while 25 metros saw an increase in the share of rentals offering concessions from June to July, 24 saw a decline. The type and extent of concessions also vary by market, often reflecting the local supply-demand dynamics.
In regions like the Sun Belt, where inventory growth has been particularly robust, the prevalence of concessions is notably higher. In Florida, for example, rent cuts and concessions have become commonplace as the state grapples with an oversupply of new apartments. Meanwhile, in cities like New York and San Francisco, where housing supply remains constrained, concessions are less widespread, though still present in certain luxury segments.
What Does This Mean for Investors?
For multifamily investors, the rise in rent concessions is a double-edged sword. On one hand, concessions help maintain occupancy in a competitive market. By offering short-term incentives, investors can avoid the more drastic step of lowering rents, which could have long-term implications for property valuations and rent rolls.
On the other hand, concessions also indicate that the market is softening in certain areas and that achieving rent growth may be more difficult in the coming months. Investors should be cautious when assessing potential acquisitions, especially in markets with high vacancy rates and new supply pipelines. The current landscape calls for a more strategic approach—one that balances rent levels with the need to keep units occupied.
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