Rental rates keep rising nationally, but renters are getting more bang for their buck these days due to an increase in rental concessions. According to a report from CoStar, an increasing number of developers are offering concessions to new and renewing residents in order to keep occupancy up. Lynn Bora, vice president of operations at Winn Companies, a firm managing nearly 100,000 apartments across the country, observed, “Concessions are back with a vengeance.”
Bora cited “urgency” on the part of property managers and owners to stabilize properties with long-term occupancy predictability. New residents who get a month or two of free rent may be more likely to stay in place next year. Returning residents who renew their leases might enjoy an apartment upgrade, a free month, or even no rent increase as an incentive to stay put.
Rising Multifamily Volume is the “Problem”
Although most major metro markets in the United States do have a scarcity of housing inventory, there is a growing glut of high-end and mid-level multifamily housing. With so many developers looking to build multifamily instead of single-family homes in order to maximize the amount of housing that may be obtained from a limited amount of land, some cities, like Nashville, are seeing 30% increases apartment inventory. This may be good news for renters, but it is not necessarily good news for the owners of that apartment inventory. They may find themselves in competition with each other for tenants who can pay rising rental rates.
Rental Rate Increases are Slowing
The effects of this competition are already showing. “In 2015,” said CoStar director of analytics John Affleck, “rental rate increases average more than 5%.” However, he added, that was a “rare year, when demand for housing, thanks to a healthy economy, far exceeded housing construction.” Since that time, developers have leapt to fill the housing void with the result that there are far more inventory options and rental rates increased by only 2% last year. With the return of the rental concession, Affleck called the situation “not a hard landing [but] it’s a return to normal.”