Competition in some rental markets is pushing landlords to offer increasingly creative concessions to tenants, such as free rent for a month or two, and even job-loss protection that guarantees the rent will be paid if tenants lose their jobs.
A new survey by a real estate research company confirms that landlords nationwide are being forced to lower what they charge their customers, whether through direct rent reductions or freebies and breaks on lease terms that have the same net result.
New York-based REIS, Inc. reports that half of all apartment buildings in the U.S. reduced rents in the fourth quarter of 2008 and the first quarter of this year, according to Business Week.
Rents quoted by landlords dropped by six tenths of a percent in the first three months of 2009, and effective rents -- netting out all the concessions offered by landlords -- fell by 1.1 percent.
Effective rents were down in four out of five of the 79 metropolitan markets surveyed by REIS. So if you are a landlord who lowered your rents in the past couple of months, you've got lots of company.
In San Francisco, average effective rents were down by nearly 3 percent in the first quarter. In New York City, they were down by 2. 6 percent, 2.5 percent in San Jose, by 1.3 percent in Charlotte, and by 1.2 percent in Chicago.
Only the big Texas markets -- Dallas and Houston -- saw average effective rents move up.
Landlords are cutting rents primarily because of rising job layoffs, cutbacks in working hours, and higher unemployment filings.
According to James Lewis, president of Maitland, Florida-based Charles Wayne Consulting, "more and more tenants (are) doubling up or moving back with family to better deal with the bad economy."
Cole Whitaker, a partner in Hendricks & Partners, an apartment consulting firm in Orlando, says building owners' expenses - like property taxes and insurance - continue to rise, but landlords can't pass those increases onto tenants and keep their buildings full.
"Our boys are eating (the differences)" for the time being, Whitaker told the Orlando Sentinel.
In some tough markets, landlords are adopting sales techniques used by car manufacturers. They are guaranteeing prospective tenants up to two months of free rent, even if they lose their jobs.
Cleveland-based Goldberg Co., an apartment investment firm with projects in Florida, Texas, North Carolina and Ohio, is advertising "layoff-proof" leases. After two months of unemployment and free rent, the company allows tenants who can't find a job the right to break the lease -- without paying a penalty.