Concessions Rise as Rental Market Softens
Rental concessions are now nearly twice as common as in February as apartment owners strive to attract new tenants in a softened market, said Zillow, Seattle.
“Before the pandemic, rent growth was accelerating and the nation was seeing concessions dwindle,” said Zillow Economist Joshua Clark. “That trend reversed sharply after the pandemic hit in February.”
Clark said in the current softer rental market, “landlords are trying to push the right button to bring renters into their space.”
The share of rental listings on Zillow that advertise some form of concession rose from 16.2 percent in February to 30.4 percent in July. That includes discounts such as free months of rent or parking or waiving a deposit fee. Only 12.5 percent of rentals advertised concessions last July.
Free weeks of rent was by far the most common of the six types of concessions Zillow tracks. Free rent made up more than 90 percent of all promotions offered across the U.S. Reduced or waived deposits (9.1 percent) and gift cards (6.6 percent) followed. The median amount of free rent offered was six weeks, which equates to an 11.5 percent annual discount. For the typical U.S. rental, that would mean about $200 in monthly savings.
In April, Zillow found 55 percent of renters reported receiving at least one concession or perk in their rental agreement. Among renters who received at least one concession, the most common were parking (35 percent) or at least one month of free rent (34 percent), followed by a reduced monthly rent price (23 percent).
Renters in multifamily properties are more likely to receive some sort of concession than those in single-family rentals, Zillow reported. Nearly two-thirds of multifamily renters report getting at least one compared to only 35 percent of single-family renters. “That means the increase in concessions is likely to be most prevalent in the multifamily buildings common in urban cores, which is consistent with previous Zillow research showing urban rents have been hit harder than rent in the suburbs during the pandemic,” the report said.
Concessions have flattened in some of the nation’s most expensive markets, where rents are dropping. July rents were down year-over-year in New York (-2.6 percent) and San Jose (-2.2 percent). The share of concessions in New York rose from 8.8 percent in February to 14.9 percent in April, before easing down to 13.8 percent in July. Likewise, concession share in San Jose moved from 21 percent in February to 46 percent in June, then down to 40.1 percent in July.
“Concessions can often be a leading indicator of a coming price drop in that landlords will often offer them first, before reducing rent,” Clark said. “If owners feel concessions are no longer moving the needle, they’ll reduce prices. Many landlords prefer to offer a concession rather than cut rent and set a precedent that could linger when the market picks back up.”
