Rent reduction given to attract or retain tenants.
A concession is a temporary rent reduction or other lease incentive offered to attract new tenants or retain existing ones. Common forms include free months of rent ("1 month free"), reduced security deposits, move-in credits, and amenity upgrades. Concessions reduce effective rent without changing the contract rent — a critical distinction for underwriting.
Concessions hide reality from contract rent. A lease at "$2,000/month with 2 months free on a 12-month lease" looks like $2,000 contract rent — but the effective rent (what the tenant actually pays over the term) is $2,000 × (12–2)/12 = $1,667/month. Underwriters who count contract rent as actual rent dramatically overstate income; sophisticated analysis always reduces to effective rent.
Concessions appear during specific market conditions. In soft markets, landlords use concessions to maintain occupancy while preserving contract rent (which sets the next lease's starting point). In lease-up phases on new construction, concessions accelerate absorption. In value-add resets, concessions help convert in-place tenants to new higher rates. Concessions tend to disappear in tight markets where landlords have pricing power.
For investors, concession analysis on the rent roll matters more than headline contract rent. A building advertising "asking rent $2,000" might be effectively renting at $1,750 after 1-month concessions. Pro forma analysis that uses contract rent overstates EGI by the concession percentage — typically 5–10% of GPR during soft markets.
Concessions also signal market direction. Rising concessions (2 months free becoming standard) signal weakening demand. Falling concessions (no concessions, premium pricing on best units) signal strengthening demand. Tracking concession trends in your submarket provides early signal on rent trajectory — before headline contract rents move.
| Lease: 12 months, $2,200/month contract | |
| Concession: 2 months free | |
| Total rent paid over term | $22,000 (10 months × $2,200) |
| Effective monthly rent | $1,833/month |
| Concession as percent of contract rent | 16.7% |
| Implications for underwriting: | |
| Use $1,833, not $2,200, in pro forma | |
| Annual revenue impact (per unit) | ~$4,400 less than contract rent suggests |
A temporary rent reduction or lease incentive given to attract new tenants or retain existing ones — typically free rent months, reduced deposits, or move-in credits.
They reduce effective rent below contract rent. A 1-month concession on a 12-month lease cuts effective rent by ~8%. Always underwrite to effective rent, not contract rent.
Concessions preserve the rent on paper, which becomes the starting point for the next lease. Cutting contract rent permanently lowers the property's rent baseline. Concessions are short-term tactical; rent cuts are long-term strategic.
Usually shown separately. A clean rent roll lists contract rent and identifies concessions in place. Pro forma analysis adjusts gross rent down for active concessions.
During soft markets, lease-up of new construction, value-add resets where landlords are pushing tenants out, and oversupply scenarios. Tight markets typically have no concessions.
Matrix underwrites multifamily loans on realistic effective rent after concession adjustments. Loan sizing reflects what the property actually collects.
