Rental Competition Heats Up Despite Weakening Market

The nation’s apartment markets have become much more competitive over the last year, according to a new report from Berkadia. Yet, the report says, occupancy rates are holding their own.

Apartments are being filled largely by job creations that, while moderating over the previous 12 months, are still outpacing the monthly average recorded during the pre-pandemic growth cycle, Berkadia says.

Coupled with continued “higher and robust” wage growth, the employment situation has benefitted the apartment market, “especially at the start of the year,” the commercial mortgage lender and servicer’s Mid-Year National Multifamily Report says.

But “the significant downshift” in leasing activity, which started in 2021, has continued as many renters chose to remain in place or continue to live at home or with roommates, the Mid-Year report says.

Indeed, the average renewal rate is roughly 56 percent, up from 52 percent on average for the five years running up to the COVID breakout. At the same time, though, some 99,000 more renters moved in then moved out.

To compete for tenants, the report found, 13 percent of all market-rate properties offered concessions in the second quarter, an increase from less than 8 percent a year earlier. But the average concession amount slipped from 5.7 percent to 4.5 percent over the period.

According to Zonda Advisory’s Kimberly Byrum, the 13 percent figure is nothing to worry about.

During a webinar in late August, Byrum, the managing principal in the Irvine, Calif. firm’s multifamily division, said the number of properties offering concessions has “stabilized” and remain relatively low.

Calling concessions a “great indicator of market health,” she said, discounts and giveaways act like an “on-and-off switch” that owners and managers can flip as needed to find tenants.

Concessions or not, Berkadia finds the increase in the net effective rental rate decelerated from almost 17 percent at the end of June 2022 to just 4 percent at this year’s midpoint.

“Apartment operators became more measured with rent increases as occupancy dropped to just under 95 percent” vs. almost 97 percent a year ago, the report says.