They won’t drop rent prices as it deflates the value of the investment. What happens is they will offer concessions of a month or two free to keep the rent rate higher.
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Concessions for multiple years are generally not accepted, especially once a property has stabilized. The notable exception to this was the large supply influx during COVID when thousands of units were introduced to the market.
If a 2021 apartment product is still offering concessions, it’s likely not receiving full credit for its assumed base rent from appraiser/lender. Ultimately, for long-term hold assets, property management will aim to maximize net cash flow by reaching the 95% occupancy threshold through “dynamic pricing” (e.g., Yield Star).
Newer developments like Maeve or Weld may initially list their units at higher rents, but because they offer differentiated features, renters are often willing to pay a premium, much like how consumers perceive added value in higher-end brands like BMW or Mercedes versus Honda or Toyota.
On the other hand, older properties that lack unique value propositions will struggle to maintain high occupancy. Without a value-add component, they may be forced to lower their rental rates. For example, a 2006-built property trying to charge $1,600 for a one-bedroom unit may have to settle for $1,500, as the market has determined that the premium for newer products is around $300 per month and recently delivered apartments are asking $1,800 for similar sized units.
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Oh yeah, I knew that! It is just to get them in the door and hope they don’t leave when you offer them a renewal that next term.