Class A Flats in Prime Markets Are Main the Rise in Concessions

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CRE Asset Classes Post Increase in Asking Rates, Pricing In Sept.

Housing concessions are increasing in the country's most expensive markets. The coronavirus pandemic has undoubtedly put pressure on the housing market, and so have many subways to see an increase in concessions as a result. However, according to research by Fannie Mae, metros with higher rents and more construction work have seen a much higher increase in concessions than metros with lower prices.

New York currently has the highest concessions in the country. This year, market concessions have increased from 7.5% at the end of 2019 to 12.6%. The concessions in San Francisco are 11.3% behind New York, while Boston follows with 9.6%. Modest priced markets such as Orlando and Phoenix saw less concessions growth and relatively low concessions overall compared to last year. The concessions in Orlando increased from 5.3% to 6.6% and in Phoenix from 4.9% to 6.4%.

Fannie Mae notes that these markets also saw the majority of new home deliveries this year. In 2020, 450,000 new residential units came onto the market, but most of these units have been concentrated on 12 subways. New York, Washington, DC, Los Angeles, Houston, and Dallas have most new homes shipped, while Austin, Seattle, and Boston follow with slightly fewer units, and Orlando, Atlanta, Phoenix, and Miami complete the list of homes in the top 12.

In terms of asset class, the most expensive homes have the highest concessions in the most expensive markets. In addition, luxury apartments were the most common asset class for new builds. At the end of 2019, the concessions for class A apartments were 7.2% and by August 2020 they had risen to 9.2%. This market segment also recorded the most new building activities. This year, 246,000 units have already been completed, and a further 204,000 are to be completed this year. As a result, the Class A concessions should continue to increase.

In the asset classes of classes B and C, the concessions have also increased, but not to the same extent as for apartments in class A. These apartments are also usually part of the older building stock, not new buildings. Class B concessions rose from 5.5% in 2019 to 7.2% in August 2020. Class C apartments, on the other hand, rose from 5.6% at the end of 2019 to 6.8% in August 2020. The increase the concessions began in April 2020 after the start of the pandemic.

However, the rising concessions in Class A housing could be an indicator of the rest of the market. As Class A concessions increase, it will put pressure on Class B and C assets to do the same. As a result, Fannie Mae expects concessions to rise across all asset classes in markets with high home delivery rates. The report also suggests that the demand for housing will increase over the next 12 months as the market develops along with the growth in employment.

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