As apartment availability rises, so do incentives
A $2,000-a-month studio apartment might not be considered a good deal in most parts of the country. But in the Bay, it might be — especially if the landlord throws in a sweetener.
At least, that's how Gwen Wang, 23, felt when she got a discount on a new studio in the Skylyne Apartments in Oakland. Her complex offered two months free rent on a studio typically priced at $2,400 a month, bringing her closer to her budget of $2,000 a month.
“With the promotion, it made sense to rent here,” Wang said.
As thousands of new units hit the market around the Bay Area, concessions — such as free rent or free parking — are becoming more common, especially in apartment complexes. As of October, two in five apartment listings in the San Francisco and Oakland metro areas were offering concessions, and half of listings in San Jose offered them, according to a new study from Zillow.
“As a way to incentivize renters to come in, concessions are rising across the board,” Zillow economist Nicole Bachaud said in an interview.
The new units are a result of a mini building boom that hit the Bay Area during a time of low interest rates during the COVID-19 pandemic, primarily concentrated in urban centers like Oakland and San Jose. In 2022, 3,158 new multifamily units were completed in Oakland, and 1,314 in San Jose, according to data from the California Department of Housing and Community Development.
Concessions are most common in newer apartment communities during their initial lease-up period, as they try to fill vacant flats by offering free parking, or a few weeks of free rent.
The Skylyne, a 402-unit, 24-story building that opened in 2020, reached 95% occupancy last year, but it is still offering concessions during the slower holiday season to compete with neighboring apartments.
“Even during renewals, we're offering two or three months free,” said Isabella Easton, assistant community manager. “It's keeping residents, and it's getting them through the door.”
In San Jose, The Julian, a 381-unit complex north of downtown, is offering six weeks free and six months of free parking. The Miro, a glistening glass-paneled apartment complex that opened in 2021, with studios
priced between $3,000 and $3,700, is offering six weeks free.
Still, a few months of free rent won't solve the main issue for Bay Area renters — housing costs here are still some of the highest in the country, a reflection of a decades-long mismatch between the demand for housing and the supply. As of the third quarter of 2023, median rents were around $3,000 in San Francisco and the South Bay, and $2,389 in the East Bay, according to data from real estate information company CoStar.
Although new apartments built in recent years have helped increase supply, the Bay Area remains chronically under-built. The state says the ninecounty Bay Area will need to add 441,000 homes by 2031 — a 15% increase in the housing stock — to meet the state's housing needs for its current and
future population.
Competition for available units remains high, as evidenced by vacancy rates around the Bay Area — they are around 7% in the East Bay and San Francisco, and 5% in San Jose, according to CoStar.
While concessions offer temporary relief to renters, Bauchaud cautions renters to look beyond the sweetener and determine whether the lease they're signing is one they can actually afford.
“Renters need to realize these things don't last forever,” Bauchaud said. “Renters need to think about the long term — is this actually a good deal for me if I'm going to be here for a while, or is this a flashy thing to pull me through the door?”
Often, that's exactly how the perks are intended. Building owners prefer to offer concessions rather than lower the rental rates because it puts them at a higher base rent from which they can raise the rent the following year, said Nigel Hughes, senior director of Market Analytics for CoStar.
“An increase of 5% doesn't look as bad as an increase of 10%,” Hughes said.
A property's value is also determined by the base rents it charges — so if a property's owner wants to sell or refinance, it's important to obtain higher rents.
Renters looking to lock in concessions will have better luck this year than next, Hughes predicted, as higher interest rates have caused apartment construction to slow. From January through October, the San Francisco metro area — which includes the East Bay and Peninsula
— permitted just shy of 6,500 homes, a 27% decline from the same period in 2023, according to U.S. Census Bureau data. The San Jose metro area also saw permits decrease 9%, from 5,975 to 5,442 new units.
“There won't be quite as much new construction in the next year, so the balance will shift back in terms of owners rather than renters,” Hughes said.
As she looks to sign a new lease in the next few months, Wang is keeping her eyes open for a better deal than what she's locked into right now at Skylyne. She's considered moving closer to the UC Berkeley campus, to be within walking distance to her industrial engineering courses.
“I'm seeing lots of sales around there right now,” she said.