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Rental Concessions: A Call for Change

Rental concessions can be an effective tool for filling vacant units, but they typically fall short when it comes to incentivizing tenant retention.

February 26, 2019

With the abundance of urban luxury apartments either currently leasing or being delivered in the next year alone, rental concessions — incentives given by property owners to attract new tenants — are increasing in prevalence. But do they always make sense for landlords and tenants?

Following the Great Recession, multifamily developers ramped up production to meet the needs of millennial renters in urban settings, as well as those that could no longer afford homeownership and instead opted to rent. In the top 15 markets, inventory has grown nearly 11% since 2010, according to RealPage, and about 1 million new apartments have been built across the country in the past three years alone. Today, around 10 years into the economic expansion, the flood of supply has slowed rent growth to about 2% annually, down from an average of more than 5% just a few years ago, according to CoStar data.

To adjust to increasing competition, property managers and owners are offering up concessions liberally, hoping to entice renters with rebates, price reductions or benefits like free gym memberships and other luxury amenities.

Often these concessions are made in an effort to quickly lease up a newly constructed property — called lease-up concessions — in order to get out from under high-interest construction loans and into a refinanced long-term interest rate. Other times, landlords in a competitive environment will offer marketing concessions to give renters a break on the list price of a stabilized property. In either case, landlords use these one-off benefits to avoid vacancy — and marketing costs.

The thing is, they aren’t always perfectly structured.

“The risk in the rise in concessions is that in many markets, developers may have financed their projects based on achieving rents that may no longer be realistic,” CoStar says in its analysis. “That is, a property that has to give away 16% of its projected annual rent just to get a new tenant in the door is priced all wrong.”

Whether or not they’re offering up concessions, many property managers and owners are leveraging amenities to compete on product differentiation. It’s not uncommon for renters to overlook small differences in rates to enjoy Smart Home technologies, bike storage, dog parks and community and wellness programming.

Rather than get caught up in a never-ending, highly commoditized “amenity war,” or negotiate arbitrary one-off concessions in an opaque market, navigating quirks like seasonality, landlords and tenants should demand a more fair and predictable system for multifamily housing concessions.

As opposed to traditional one-off concessions that may attract renters but fail to retain them, Rhove incentivizes renters to remain in a property for an optimal tenancy period.

By offering a recurring financial incentive, earned over the period of a lease, landlords using Rhove can provide a reliable savings vehicle for renters while keeping their properties leased at lower costs. Rhove helps to ensure properties are leased to their full potential while allowing renters to capture value from where they live. It’s a system that rewards both landlords and their tenants.

If you’re looking for a rental concession that not only attracts, but retains tenants check out our website. We’d love to hear from you and get your perspective.