With apartment market fundamentals tightening notably, all of those free rent giveaways that proliferated in the 2008-2009 time frame are going away, right?
Well, progress is being made, but rent incentives seem to be hanging around a bit more than might be expected in an environment where occupancy is way up and effective rent change is in solid growth mode.
Concessions were offered at least on select floor plans for 45 percent of the apartment product across the country that MPF Research surveyed in Q4 2010. That share dropped on an annual basis, but only by a moderate 6 percentage points. Once concessions take hold, it can take longer to bring them under control than shifts in overall market conditions might suggest, simply because onsite personnel become very dependent on price as a negotiating tool during a downturn. And, given the high turnover that’s typical in onsite staffing, many leasing professionals are now working in a setting where rents are actually rising for the first time.
Owners are cautioned not to make too much of specific concession stats. Because operators constantly change the rent figure that they’re discounting from, concession burn-off doesn’t impact revenues in the straightforward mathematical formula that might be assumed. But the ebb and flow of concession use serves as a general indicator of whether a market is improving. And the metros that registered the most concession burn-off during the past year for the most part indeed are ones that posted pretty meaningful increases in both occupancy and effective rents.
Among the 64 metros that form the core of MPF Research’s national apartment coverage, that list of concession burn-off leaders starts with Oklahoma City. The share of product featuring giveaways there plunged by 25 percentage points during calendar 2010 (falling from 54 percent to 28 percent). Use of concessions also dropped at least 20 percentage points on an annual basis in Detroit, Portland, Pittsburgh and El Paso. The decline in El Paso left the share of surveyed product offering discounts there at just 3 percent, the smallest figure seen nationally.
Use of giveaways lessened by at least 15 percentage points during the past year in New York, Tulsa, Fort Myers/Naples, Austin, Birmingham, Fort Lauderdale, Louisville and Oakland.
The share of product featuring discounts inched up a tiny, tiny bit in a handful of metros over the course of 2010, but there wasn’t a significant move toward more giveaways anywhere. That’s very good news.
Source: MPF Research, March 29 report