Landlords fight rising vacancy rates

Posted by Carrie B. Reyes, June 8, 2023, Economics, Property Management, Real Estate Recessions
Landlords are increasingly turning to rent concessions — such as free or discounted rent, a reduced security deposit or “free” amenities like parking — to attract tenants in 2023.

Here in California, the share of residential rentals offering concessions as of April 2023 is:

* 16% in Riverside, up from 10% a year earlier;
* 29% in Los Angeles, up from 22% a year earlier;
* 29% in Sacramento, up from 21% a year earlier;
* 42% in San Francisco, up from 33% a year earlier; and
* 46% in Santa Clara, up from 34% a year earlier, according to Zillow.

The only major metro in California with a lower share of rental concessions is San Diego, with 21% of rentals currently offering concessions, down from 23% a year earlier.

The slight rise in rental concessions is reflective of a bump in the rental vacancy rate, with California’s rentals experiencing a 4.1% vacancy rate in Q1 2023, up from 3.8% a year earlier, according to the U.S. Census Bureau.

Still, while the supply-and-demand imbalance is heading in the right direction — toward stabilization — the rental market is a long way from normal.

For example, the historical average rental vacancy rate is a higher 5.5%. Today’s rate of 4.1% is only slightly higher than the decades’ low of 3.6% experienced in 2016.

When vacancy rates are low, rents tend to rise faster than the pace of tenant incomes, resulting in the state’s infamously high housing costs.