Concessions cool as spring rental season approaches

Rhea-AI Summary

Zillow's latest data indicates a shift in the rental market, with fewer concessions offered to tenants compared to the previous winter. Despite the decrease, the market remains more tenant-friendly than a year ago, with a 5.6 percentage point rise in concessions. The rental market shows signs of stabilization as the share of rentals offering concessions slightly dropped to 32.2% in February. Certain metros continue to lead with high concession shares, reflecting diverse strategies to attract tenants.

Market Research Analyst

The recent data from Zillow indicating a stabilization in rental concessions, such as free months of rent or parking, suggests a shift in the rental housing market dynamics as we approach spring. This stabilization likely signals a tighter market for renters, which can have various implications for businesses operating in the real estate sector, particularly those focused on property management and development.

From a market research perspective, the observed trend of concessions leveling off after a period of increase could imply that the supply of rental properties is aligning more closely with demand. This balance is important for maintaining a healthy market and can prevent the kind of volatility that makes planning and forecasting difficult for businesses. Companies might need to adjust their marketing strategies and operational plans to accommodate for the reduced need to offer concessions to attract tenants.

Furthermore, the regional differences highlighted in the report underscore the importance of localized market analysis. For instance, areas like Salt Lake City and Charlotte are still experiencing high levels of concessions, which might indicate a local oversupply or weaker demand. Conversely, markets such as Providence and Hartford, with fewer concessions and rising rents, might present opportunities for property managers to capitalize on stronger demand.

Real Estate Economist

The data from Zillow provides valuable insights into the current state of the rental market, which has implications for the broader economy. The slowing pace of rent growth and the slight increase in vacancy rates suggest that the post-pandemic rent surge is stabilizing. This could be a result of various economic factors, including changes in employment patterns, urban to suburban migration trends and the financial health of consumers.

As a real estate economist, I would interpret the current concession trends as an early indicator of supply-demand equilibrium in the rental market. The fact that rents are not increasing as rapidly as before could indicate that the market is becoming less favorable for landlords and more favorable for tenants in the short term. This could lead to a decrease in rental income growth for property owners and, consequently, could impact the valuation of rental properties. Over the long term, if the trend continues, it could also affect new housing starts and influence investor sentiment in the real estate market.

Additionally, it is essential to consider the potential impact of these trends on consumer spending. If renters are spending less on housing due to lower rent increases or concessions, they may have more disposable income for other goods and services, which could stimulate economic activity in other sectors.

Financial Analyst

Investors and stakeholders in the real estate sector should take note of the implications of Zillow's report on rental concessions. The apparent equilibrium in the market could influence the performance of real estate investment trusts (REITs), particularly those with significant exposure to residential properties. A tighter rental market with fewer concessions could lead to stable or increasing rental revenues for these REITs, potentially making them more attractive to investors looking for steady income streams.

Moreover, the correlation between rental concessions and rent growth rates is a critical factor to consider when evaluating the financial health of real estate portfolios. In markets with high concessions and lower rent growth, there may be concerns about oversupply or declining property values. Investors should be vigilant about these regional variances and consider diversifying their portfolios to mitigate risks associated with any single market.

Lastly, the data could influence the strategies of companies that provide services to the real estate sector, such as construction firms, property management software providers and financial institutions offering mortgages or financing for rental developments. These businesses may need to adjust their growth projections and strategies in line with the changing market conditions.

Property managers' race to woo tenants eases, signaling a tighter market for renters this spring

SEATTLE, March 20, 2024 /PRNewswire/ -- After a winter that saw nearly a third of rental listings offering tenants tempting concessions such as free months of rent or free parking, Zillow's latest data reveals the share of rentals offering perks may have hit its peak. The good news for renters is that the market is friendlier than it was a year ago, with the share of rentals offering a concession rising 5.6 percentage points.

As spring approaches, February data show 32.2% of rental listings on Zillow offered a concession, down slightly from December and up 5.6 percentage points from a year earlier. That marks the slowest annual growth pace since last June. After seven months of consecutive monthly increases to end 2023, the share of rentals offering concessions fell to 31.9% in January before a slight uptick last month.

If past seasonal trends continue to hold, renters looking to secure a new lease in the upcoming spring or summer may encounter fewer incentives and increased competition.

"The rental market always ebbs and flows with the seasons, so it's no shock that we're seeing concessions start to level off as we move into the warmer months," said Anushna Prakash, an economic research data scientist at Zillow. "It looks like we're beginning to see the market balance the ongoing high demand from renters with a competitive environment for property managers and landlords. While concessions are beginning to dip, they are more common than they were a year ago, helped by new buildings that have opened their doors."

While the expected seasonal shift accounts for the stabilization of concessions, the pace of rent growth and vacancy levels offer deeper insights. Recently, rents haven't been going up as quickly as they did before the pandemic, and it looks like supply and demand are starting to balance out. The share of rental housing units that were vacant  was at 6.6% in the fourth quarter of 2023, which is just a bit higher than the nearly forty-year low seen at the end of 2021. This indicates there are enough eager renters, nudging the market toward stability.

The Metros Leading the Concession Charge

Despite the national trend toward stabilization, certain markets continue to lead with high shares of concessions. These metros exemplify the diversity within the rental market, with strategies varying widely across regions to attract tenants.

10 Metro Areas with the Largest Share of Rental Concessions

Metro	Share of Rentals w/ Concessions	Year over Year (YoY) Change in Share of Concessions	Typical Rent in Zillow Observed Rent Index (ZORI)	YoY Change in ZORI
Salt Lake City, UT	60.3 %	+ 22.9 percentage points	$1,656	1.6 %
Austin, TX	55.0 %	+ 17.9 pp	$1,735	-3.0 %
Charlotte, NC	53.5 %	+ 19.0 pp	$1,775	1.7 %
Dallas, TX	50.7 %	+  13.5 pp	$1,747	0.5 %
Raleigh, NC	50.6 %	+ 13.4 pp	$1,747	1.2 %
Nashville, TN	49.9 %	+ 9.9 pp	$1,874	0.7 %
Washington, DC	49.4 %	- 2.9 pp	$2,273	5.1 %
Minneapolis, MN	49.4 %	+ 4.3 pp	$1,615	2.9 %
Phoenix, AZ	48.8 %	+ 8.6 pp	$1,846	1.4 %
Denver, CO	48.1 %	+ 8.5 pp	$2,007	3.1 %
United States	32.2 %	+ 5.6 pp	$1,959	3.5 %

Source: Zillow data

In nine of the ten metros where the share of rental concessions is highest, rents are growing more slowly than the nationwide 3.5% annual rate, and they are outright falling in Austin. This could mean there are more apartments available than there are people looking to rent them.

On the other hand, areas where there are fewer of these kinds of deals available, such as Providence, R.I. (12.3% of rentals offered concessions in February), Hartford, Conn. (16.3%), and Cincinnati, Ohio (18.9%), are seeing some of the fastest rent increases. In Providence, typical rents have jumped by 8.1% since last year. Hartford and Cincinnati both saw rents increase by 6.4%.

Zillow provides a user-friendly platform for housing providers to share concessions information with prospective renters. Property managers can easily list concessions for their properties, and renters can find all available offers under the "Special Offers" tab on participating building detail pages, enabling them to make well-informed housing decisions.

About Zillow Group
Zillow Group, Inc. (Nasdaq: Z and ZG) is reimagining real estate to make home a reality for more and more people. As the most visited real estate website in the United States, Zillow and its affiliates help people find and get the home they want by connecting them with digital solutions, dedicated partners and agents, and easier buying, selling, financing and renting experiences.

Zillow Group's affiliates, subsidiaries and brands include Zillow®, Zillow Premier Agent®, Zillow Home Loans℠, Trulia®, Out East®, StreetEasy®, HotPads®, ShowingTime+℠, Spruce® and Follow Up Boss®.

All marks herein are owned by MFTB Holdco, Inc., a Zillow affiliate. Zillow Home Loans, LLC is an Equal Housing Lender, NMLS #10287 (www.nmlsconsumeraccess.org). © 2023 MFTB Holdco, Inc., a Zillow affiliate.

 

View original content to download multimedia:https://www.prnewswire.com/news-releases/concessions-cool-as-spring-rental-season-approaches-302093876.html

SOURCE Zillow

What does Zillow's latest data reveal about the rental market?

Zillow's latest data indicates a decrease in concessions offered to tenants compared to the previous winter, signaling a shift in the rental market.

How has the rental market changed compared to a year ago?

The rental market is more tenant-friendly than a year ago, with a 5.6 percentage point rise in concessions.

What was the share of rentals offering concessions in February according to Zillow?

In February, 32.2% of rental listings on Zillow offered concessions, marking a slight decrease from the previous month.

Which metros lead with high shares of concessions?

Salt Lake City, UT, Austin, TX, Charlotte, NC, Dallas, TX, Raleigh, NC, Nashville, TN, Washington, DC, Minneapolis, MN, Phoenix, AZ, and Denver, CO are the top metros with high shares of concessions.

What is the typical rent in Zillow Observed Rent Index (ZORI) for Salt Lake City, UT?

The typical rent in ZORI for Salt Lake City, UT is $1,656.