New York Concessions are Highest in Nation and Growing

New York currently has the highest concessions in the country: the value of concessions offered has risen 5.1 percentage points from 7.5% at the end of 2019, to 12.6% in August 2020, according to Fannie Mae. For context, a month of free rent is a concession rate of 8.3%. This increase is significant because not only are multifamily concessions rising in general, but new research from Fannie Mae shows they are rising the fastest in the top markets around the US as well as in top, class A properties.

Other top markets include San Francisco, where concessions are trailing New York at 11.3%, while Boston follows at 9.6%. Modestly priced markets, like Orlando and Phoenix, have seen a lower increase in concessions compared to last year and relatively low concessions overall. Orlando concessions increased from 5.3% to 6.6%, and Phoenix concessions have increased from 4.9% to 6.4%.

Fannie Mae notes that these markets have also seen the most new construction apartment deliveries this year. In 2020, 450,000 new apartment units have hit the market, but most of these units have been concentrated in 12 metros. Here again, New York leads with more than 71,600 units under way, followed by Washington, D.C., Los Angeles, Houston and Dallas. Austin, Seattle, and Boston follow with slightly fewer units, and Orlando, Atlanta, Phoenix, and Miami complete the list of the top 12.

In addition, luxury apartments have been the most common new-construction asset class. At the end of 2019, class-A apartment concessions were 7.2%, and by August 2020, they have increased to 9.2%. This market segment has also seen the most new construction activity. This year, 246,000 units have already been completed and another 204,000 units are scheduled for completion this year. As a result, class-A concessions should continue to rise.

Class-B and class-C asset classes have also seen an increase in concessions, but not to the same extent as class-A apartments. Likewise, these apartments are generally part of the older building stock, not new construction. Class-B concessions increased from 5.5% in 2019 to 7.2% in August 2020. Class-C apartments, on the other hand, have increased from 5.6% at the end of 2019 to 6.8% in August 2020. The increases in concessions began in April, after the start of the pandemic.

The rising concessions in class-A apartments, however, could be an indicator for the rest of the market. As class-A concessions increase, it will put pressure on class-B and class-C assets to do the same. As a result, Fannie Mae is anticipating rising concessions across asset classes in markets with high rates of new apartment deliveries. The report also suggests that as the market unfolds over the next 12 months apartment demand will increase in step with job gains.