More operators turned to concessions to attract new renters in the second quarter as they faced an influx of competition from newly delivered multifamily and single-family units, according to a new report from Berkadia.
More than 1 of every 5 professionally managed apartments offered concessions in the second quarter, which was a sharp year-over-year increase. However, Berkadia noted these levels were well below the averages seen during the two previous economic growth cycles, with nearly two-thirds of units offering concessions in the fourth quarter of 2009, the highest on record.
Looking at historical data, occupancy is one of the biggest factors when it comes to concessions.
“The recent annual rise in concessions was the opposite to the change in the national occupancy rate at the same time,” noted the report. “At 94.2% in the second quarter of 2024, occupancy decreased 50 basis points (bps) year over year. This inverse relationship has been generally present for more than two decades with the share dropping to single digits as occupancy surpassed 97% in 2022.”
Looking ahead, Berkadia predicts the occupancy rate to increase 20 basis points by the end of the year and continue to rise to 94.8% by the fourth quarter of 2025, boding well for operators.
The share of units offering concessions is expected to drop 120 bps during the second half of this year. If Berkadia’s forecasted 40-bp increase occurs next year, historic trends indicate an average decrease of 290 bps.
“Underpinning the expected rise in occupancy will be continued strong leasing,” noted the report. “Net absorption is forecast to surpass deliveries in the second half of this year through the end of 2025.”
