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It's Not Just Sales that are Soft

WSJ, Dec 13th, 2023

Landlords Resume Rental Concessions 

Owners look to fill buildings by offering a month free, gift cards and other perks


When Tressy Coats looked to rent a somewhat worn-out, three-bedroom house in Virginia Beach, Va., two years ago, the market was so tight that 46 other people applied to rent the same home.

This June, Coats found an ocean-facing, two-bedroom apartment in that city. The $2,100-a-month rent was lower than she expected, and the landlord even cut the security deposit by about $1,000.

“This year was totally different,” Coats said.

After suffering through a three-year period when rents jumped by 30% or more in many U.S. cities, renters are now starting to enjoy small breaks. Rents still aren’t falling by much. But thanks largely to an unusual surge in new building supply, more landlords are offering other enticements to fill up their properties, from a month of free rent to a reduction in fees and deposits.

In suburban Atlanta, landlords renting houses are pledging free lawn care or housekeeping services. Tenants at certain buildings in Chicago can spin a wheel and win gift cards to local businesses.

Concessions have been especially prevalent in the most overbuilt Sunbelt markets, but they are on the rise in the majority of major metro areas. About one-third of apartment and home-rental listings this October included some type of markdown, according to an analysis of rental listings by real-estate firm Zillow. This was the highest rate since February 2021, Zillow said.

Property-data firm CoStar Group, meanwhile, found three times as many apartment-rental buildings offered concessions this October than during the same month two years ago.

“Tenants are starting to expect concessions,” said Adrian Savino, managing director at the Living New York real-estate brokerage in New York.

That calculation represents a reversal from last year, when renters in several U.S. cities had resigned themselves to bidding wars to lock down a rental home or apartment.

The deepest discounting is happening in the South and other Sunbelt markets, in cities such as Charlotte, N.C., and Dallas, where there has been more construction than in the rest of the country. Mid-America Apartment Communities, a publicly traded company focused on Sunbelt cities, said in an October earnings call that widespread use of concessions by developers was weighing on how much rent it could charge.

But tenants are taking advantage of concessions in big and expensive Northern cities, too. The effective rents of one-bedroom units in professionally managed, high-rise buildings in Chicago’s West Loop neighborhood were 14% lower at the end of November compared with that month last year due to concessions, said Sophie Morrison, a real-estate broker at Downtown Apartment Co.

Andie Melendez, a 28-year-old behavior analyst, is moving into a one-bedroom in a downtown Chicago high-rise that offered her two months free rent. The building is stocked with amenities like an indoor swimming pool, gym and a roof deck. “I upgraded places and decreased in price,” said Melendez.

In New York, Lil Alvarez, a 23-year-old designer, found a 750-square-foot corner unit in a doorman building near Union Square that offered two months free. Brian Hourigan, a senior managing director at the Bond New York brokerage firm, expects concessions in New York to get so deep this winter that some tenants will try to break their lease to move to a heavily discounted building, even if it means paying a penalty.



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