"This is attractive to some owners because it eliminates default after the free rent," according to the company's latest report and forecast.
"But it is much more difficult to raise rent than to eliminate concessions," the company notes. "If rent is lowered to match a three-month concession on a 12-month lease, it takes nearly 10% increase for three year in a row to get back to the current rental level."
In addition, with free rent, residents are accustomed to paying the higher rent at renewal, and are qualified to pay it, they note. Luxury communities are especially vulnerable, the two say, because increasing wear and tear on their units could cause them to lose market position.
"When rents are reduced, then turnover will be extreme as rents are brought back up," they say. "Without question, the trend toward net pricing could prolong the soft market conditions."
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