Touted as a boutique luxury apartment building in the nexus of a tony suburb just outside Philadelphia, the Delwyn in Bala Cynwyd planned to open in the spring and charge as much as $2,430 a month for its biggest units.
After the pandemic delayed construction, the Delwyn was ready to open in September. And with a concession: no rent for the rest of the year for the 87 unoccupied units in the building, which was developed by Federal Realty Investment Trust and is managed by Greystar.
“What they’re doing in some of these communities is saying, ’Look, we’re worried. It’s a little hard to predict the future. We want to have some stability, so let’s eat some of the costs now,’” said Igor Popov, chief economist at Apartment List, an online rental listing service.
In return, he said, it could be expected that property managers would ask tenants to sign longer leases.
At the Delwyn, residents who accept the free rent deal would sign a lease for two years instead of one, a spokesperson for the Philadelphia-based public relations firm Neff said. Three residents — the first to occupy the building — have accepted the Delwyn’s offer and are expected to move in Sept. 15.
“I think one month is common,” Popov said of rental concessions. “Two months is generous.” Three months, as at the Delwyn, he said, was one of the more dramatic offers he had heard of.
Nationally, the struggle to find tenants in some real estate markets has sharply contrasted with widespread demand from home buyers motivated to purchase amid markedly low mortgage rates. The listing price of houses in the Philadelphia metro area was up about 19% in August as inventory declined in concert with strong consumer interest, according to an assessment of national residential real estate trends.
In the rental market, property managers most often have chosen to offer free rent to potential tenants during the coronavirus pandemic, according to a study from the real estate company Zillow. Across the United States, free rent made up 90.8% of the bargains offered to tenants, followed by a waived or reduced security deposit at 9.1%, a gift card at 6.6%, free parking at 2.3%, a waived application fee at 0.6%, and waived broker fees at 0.1%. The median length of free rent was about six weeks.
As a whole, the rate of rental concessions rose to 30.4% in July from 16.2% in February, according to the study, with Washington, Charlotte, N.C., and Austin, Texas, reporting the most bargains.
In Philadelphia, 30.7% of listings offered some type of concession in July compared with 15.3% at the same time last year, according to Zillow. Of the 50 largest metro areas in the U.S., Philadelphia ranked in the middle with the number of concessions in listings.
“Concessions can often be a leading indicator of a coming price drop, in that landlords will often offer them first before reducing rent,” the study noted, adding that property managers offered fewer concessions if rent was decreased. “If owners feel concessions are no longer moving the needle, they’ll reduce prices.”
In Philadelphia overall, Popov said, the rental market has remained “pretty robust in terms of rent.”
“It’s getting some more interest from out-of-towners than it has in previous years,” he said. “Philadelphia is a really interesting market because it’s more affordable than other coastal Mid-Atlantic cities, and I think the New York-to-Philadelphia migration supports the rental market.”
Meanwhile, across the U.S., interest on the part of buyers outpaced the number of homes for sale, resulting in a median 10% increase in listing price. Last August, according to a report from realtor.com, about 500,000 more homes were on the market. This summer, compared with last, the number of homes for sale dropped 36% in August, more than the 34% in July.
“Rentals are cooling off, but home prices in premium markets, they’re not falling,” Popov said. “The truth is, inventory is so low, especially for price points that are interesting or feasible for first-time buyers. There’s still so much demand for the price points that first-time buyers need that even a little bit of a reduction in demand, or a big recession, is not wiping that out as a result.”
Although potential renters were able to capitalize on concessions ranging from free rent to gifts such as gift cards or flat-screen TVs, some current tenants have struggled to pay rent, Popov said, particularly if they lost their jobs during the pandemic.
“It depends on the market, but I think most of the renegotiations that are happening are not folks trying to score a deal,” he said, “but they say, ‘I’ve been furloughed since April, so I can’t make it this month, but this is what I can do.’”
Such a deal could present problems in the future, according to Zillow’s study, noting that “landlords prefer to offer a concession rather than cut rent and set a precedent that could linger when the market picks back up.”
Even so, Popov said, “the bargaining power is shifting somewhat.”