Renters have significant power to negotiate concessions on new apartment leases, as newly completed units remain vacant for months.
According to a report from Redfin, 49% of newly built apartments completed during the fourth quarter were rented within three months. While that’s an improvement from 47% during the third quarter, it represented the fifth consecutive quarter of rental absorption below 50% and lags pre-pandemic norms.
Redfin attributed this to the record new supply in the past couple of years. During the fourth quarter, 125,000 new apartments were added across the country, just below the record of 142,900 posted during the previous three months. As a result, rents overall have dropped slightly.
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“Renters are in a relatively rare position where they can finally benefit from market conditions rather than scramble to keep up with them,” said Redfin Senior Economist Sheharyar Bokhari. “With more apartments available, renters can afford to be a little more picky about where they want to live and are in a stronger position to negotiate for concessions like flexible lease terms, lower rents or free parking.”
However, the advantages renters currently have may be short-lived. Approvals for multifamily construction permits have dropped to pre-pandemic levels, indicating that new apartment supply will start to taper off. Absorption rates will likely rise as a result, along with asking rents, said Redfin.
Larger apartments with at least three bedrooms completed during the fourth quarter rented the quickest, according to the residential brokerage. Fifty-three percent were leased within three months, in line with a year ago, despite an increase in the number of apartments completed. The median asking rent on bigger units was $2,423, up 0.5% year-over-year.
Forty-four percent of both two-bedroom and one-bedroom units and 47% of studios were leased within three months. Median asking rent on a two-bedroom unit was $2,063, an increase of 4.4% year-over-year, while median asking rent on one-bedroom units increased 9.6% to $1,736. Studio apartment asking rents jumped 23.5% year-over-year to $1,726.
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Kristen Smithberg
Kristen Smithberg is a Colorado-based freelance writer who covers commercial real estate, insurance, benefits and retirement topics for BenefitsPRO and other industry publications.
