The Commercial Real Estate Alpha Site

via Janover, Inc.

With the wave of new apartments hitting the market, many operators are quick to jump to rent concessions as a sort of silver bullet.

While it might be a better idea than lowering rents outright, the question remains: If you offer concessions, is it enough to keep your units occupied?

It shouldn’t be any secret that renewals are getting a little more challenging for most properties these days. Take Berkadia’s recent report: Renewal rates hit a 10-year high of about 58% in the third quarter of 2021. By the end of 2022, renewals had fallen to 52.6%.

Occupancy is always going to be one of the most important metrics for an apartment building. But keeping your units full is an ongoing battle, filled with pain — even when the market’s hot.

A summary of Berkadia’s report.

Over the past few years, multifamily concessions have increased to accommodate renters from the pressures the pandemic put on the economy.

Nationally, concessions peaked in the third quarter of 2021, reaching 6.3%. From 4Q20 to 4Q21, concessions were above 6.0%, a substantial amount above the pre-pandemic five-year average of 3.4%. Regionally, markets in the Northeast were offering more concessions compared to others, peaking at 7.6% in 2021. Meanwhile, concessions in the South remained the lowest due to positive net in-migrations to southern markets such as Dallas-Fort Worth and Austin. As pandemic restrictions lifted and the economy began recovering, concessions began to drop at the start of 2022, lowering to 4.5% by the end of the year.

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