Fewer rent concessions in the fourth quarter suggest that demand is recovering or rents are being reset, according to the most recent report from Yardi Matrix.
“Multifamily concessions rose sharply in the spring and fall of 2020 as multifamily demand waned due to job losses and social distancing measures. The impact was felt most in high-cost gateway markets, while secondary and tertiary markets benefited from the shift in demand,” Yardi Matrix says in the report.
“Concessions declined in the fourth quarter, raising possibilities that demand is recovering or rents are being reset.”
- Concessions increased the most in the upper tier of the market: gateway metros and Class A and high-rise properties. Gateway markets had the largest percentage increase in concessions and the highest value of concessions as a share of monthly rent.
- Strategies employed by owners to optimize income—such as offering concessions or lowering asking rent—are affected by competitive pressures, which may differ by metro.
- Metros with the highest percentage of properties offering concessions are those with a pandemic-driven drop in demand and those with copious amounts of supply coming online.
- Concessions peaked in the middle of the year and then declined in the fourth quarter. This could be a sign that the market is stabilizing or that owners are shifting strategies to attract and retain tenants. The decline could signal that new asking-rent levels are being set that will be carried into the post-pandemic market.
Is the market being reset?
“The data shows a pattern of apartment demand shifting from more expensive properties and metros to lower-cost properties and metros, which makes sense given the economic situation. More owners are choosing concessions to attract renters in the hope of returning to pre-COVID-19 levels of rent when the economy rebounds,” Yardi Matrix says.
“Concessions, however, are but one tactic for apartment owners trying to maximize revenue. Other options include lowering rent. Differences in metro-level data could mean that concession strategies depend in part on what competitors are doing,” the report says.
Yardi Matrix researchers say there are several reasons for the decline in the use of rent concessions. One reason could be there is some optimism around the vaccines being available and the prospect of the jobs and economy beginning to return closer to normal conditions.
“Another factor is that the natural leasing cycle was delayed for several months. Concessions tend to rise and fall with the season, increasing during the winter, when demand is weak, and decreasing in the spring, when demand is at its highest,” Paul Fiorilla, Director of Research, and Maddie Harper, Senior Research Analyst for Yardi Matrix write in the report.
“The pandemic may not have eliminated the 2020 leasing cycle so much as pushed it back a few months. Although it is still too soon to draw firm conclusions, the recent decline in concessions might also indicate that in some metros the dominant trend is to reset rents at lower levels rather than using incentives.
“Moving forward, the big question facing multifamily is how much employment trends such as work-from-home and lifestyle preferences for city versus suburbs have changed the demand equation. The answer will determine the use of concessions and whether rents reset at new levels,” Fiorilla and Harper write.
About Yardi Matrix:
Yardi Matrix researches and reports on multifamily, office and self-storage properties across the United States, serving the needs of a variety of industry professionals. Yardi Matrix Multifamily provides accurate data on 18+ million units, covering more than 90 percent of the U.S. population. Contact the company at (480) 663-1149.