Asking Rents and Concessions
Nationally, the level of asking rent was practically unchanged between December and January. That resulted in the annual growth rate for asking rents slowing from 2.36% in December to 2.25% in January. A year ago annual asking rent growth was 2.14%. While Axiometrics tracks asking rent growth, effective rent growth is our main focus because it matches closest with actual revenue growth.
Concession values lowered the asking rent 1.99% at the national level in December, which is the equivalent of 7.3 days of free rent on a 12-month lease. For comparison, the concession value lowered asking rents 3.33% last year and 5.12% two years ago.
The following charts compare the trends for concession values and annual effective rent growth for three major MSAs to the national average.
The concession value has fallen significantly in Atlanta since early 2010. In January 2013, concessions were lowering asking rents by 3.9% compared to the peak of 12.8% three years ago. In January, Class A and B properties were only lowering asking rents 1.4% and 3.6%, respectively. Class C properties were still lowering asking rents by 9.3%, but that is a substantial decline from three years ago when concessions were lowering asking rents by 19.1%.
Despite the reduction in concession values, Atlanta’s effective rent growth remained below the national average until the last few months because asking rents have barely moved. The average year-over-year growth in asking rents has been 0.14% in Atlanta over the last 24 months. The national average has been 2.42% over the same period. The top MSAs for effective rent growth increased asking rents and lowered concession values. Breaking down Atlanta’s results by class shows that Class A properties significantly outperformed the national average early in the expansion period. Over the last six months, effective rent growth for Class A properties has trended closer to the national average while growth for Class B and C properties has rebounded.
The concession trends for Seattle and Washington, DC are interesting. The two MSAs have typically offered less in concession value than the national average. Seattle was one of the hottest MSAs in the country heading into the downturn and it was rare to find a property offering concessions even as late as the summer of 2008. Like the rest of the country, concessions increased as the economy worsened.
Seattle is now back to the point where concessions are very scarce. Looking at the prime leasing season in 2012, only about one of every 17 properties we surveyed in the Seattle MSA offered a concession such as free rent upfront, prorated rent, or reduced rent. Currently, the ratio is about one of every 10 properties offering a concesion, but that is mainly attributed to seasonality. It will be interesting to see if there is any uptick in concession value as new supply ramps up this year, particularly in the Downtown/Capitol Hill/Queen Ann submarket, which is slated for the delivery of approximately 3,500 new apartments units this year. Many of the properties in that submarket use revenue management, so we might simply see the quoted rent shift down rather than the widespread use of concessions.
In looking at the performance of Washington, DC, notice how Seattle and Washington, DC offeredpractically the same concession values in 2009 and 2010. Concession values remained low over the last two years, but further reductions in concessions in 2011 and 2012 did not occur there as they did in Seattle. In fact, the DC MSA now offers a concession value comparable to the national average. Effective rent growth began to slow in Washington, DC as concession values settled at a level near 2.0%. When concession values remain flat over time, it means that asking and effective rents are growing close to the same rate. Washington, DC’s annual asking rent growth was just 1.12% in January 2013, down from 4.42% and 3.05% in January 2011 and 2012, respectively. Correspondingly, annual effective rent growth was 1.54% in January 2013 while it was 7.18% and 3.55% in January 2011 and 2012, respectively.