A concession is an incentive a landlord grants to sign or renew a lease, such as free rent, waived fees, or reduced rent, that lowers the tenant's real cost below the asking rent. Concessions preserve the face rent on paper while discounting the true rent economically. A concession is the gap between asking rent and net effective rent.
How Does a Concession Work?
A concession works by giving value to the tenant while holding the stated, or face, rent unchanged, so the landlord protects the headline number that comps and lenders see. The most common form is free rent, such as one month free on a twelve-month lease. Per Zillow, in November 2025, 39.3% of U.S. rentals offered a concession.
The tenant's true cost is captured by net effective rent, which spreads the concession across the full term. Per Wall Street Prep, the formula is Net Effective Rent = (Gross Rent x (Term Months - Free Months)) / Term Months. One month free on a twelve-month lease at $2,000 asking yields $1,833.33 net effective, a discount the face rent hides.
Concession type | How it works |
Free rent | One or more months at zero rent |
Reduced rent | Lower monthly rate for a set period |
Waived fees | Application, admin, or move-in fees waived |
Perks | Free parking, storage, or amenity credits |
A concession is a discount in disguise. The landlord keeps a high face rent for comparison and lending purposes, while the tenant pays a lower effective rent, which is the number that actually reflects the deal.
Why Concessions Matter
Concessions matter because they reveal the gap between advertised rent and collected rent, and that gap drives effective gross income and value. A rent roll listing full face rents overstates income if half the leases carry a free month, so an underwriter who ignores concessions will overvalue the asset and misjudge its cash flow.
The market backdrop is severe. Per GlobeSt and Yield PRO, rental concessions hit record levels in 2025 as new supply forced landlords to compete, and per CNBC, nearly 40% of landlords were offering concessions in early 2026. Per Zillow, the highest-concession markets in late 2025 included Denver at 68.3%, Charlotte at 66.6%, and Dallas at 64.2%.
Concessions also mask distress. A property maintaining occupancy only by giving away two months of free rent is economically weaker than a property at the same occupancy with no giveaways. The concession load is a truth serum for how much real demand supports the face rents.
Example
A landlord advertises a $2,000 monthly asking rent and offers one month free on a twelve-month lease to fill a competitive building. The tenant occupies for all twelve months but pays for only eleven. The table converts the concession into net effective rent and an annual discount.
Line | Calculation | Amount |
Asking rent (annual) | 12 x $2,000 | $24,000 |
Free rent concession | 1 x $2,000 | ($2,000) |
Rent actually paid | 24,000 - 2,000 | $22,000 |
Net effective rent (monthly) | 22,000 / 12 | $1,833.33 |
Effective discount | 2,000 / 24,000 | 8.3% |
The $2,000 concession converts a $2,000 face rent into $1,833.33 net effective, an 8.3% discount. Across a 200-unit building where every lease carries one month free, that is $400,000 of asking rent never collected in a year, income the face rent roll would falsely imply exists.
Variations and Edge Cases
Concessions vary in how they are structured and disclosed. Per Zillow, prevalence swings sharply by market, from Denver at 68.3% to Buffalo at 11.1% in late 2025, so a concession norm in one submarket signals distress in another. How a concession is spread also changes tenant behavior at renewal.
Structure | Effect |
Free month upfront | Largest first-month savings, renewal shock later |
Free rent amortized | Discount spread evenly, smoother renewal |
Net vs gross concession | Amortized reads as lower face rent to comps |
Waived fees only | Small effective discount, one-time |
Renewal concession | Retains tenant, resets net effective lower |
The recurring error is underwriting to face rent and treating concessions as a footnote. In a heavy-concession market, net effective rent, not asking rent, is the number that survives contact with the bank account.
Concession vs Net Effective Rent
A concession is often confused with net effective rent, but they are opposite sides of the same deal. A concession is the incentive itself, the free month or waived fee. Net effective rent is the resulting average rent the tenant actually pays across the full term after that incentive is spread out.
The difference is the giveaway versus the result. The concession is what the landlord grants; net effective rent is what the tenant effectively pays. One month free on a $2,000 twelve-month lease is the concession; the $1,833.33 monthly figure it produces is the net effective rent.
Frequently Asked Questions
What is a rent concession?A rent concession is an incentive a landlord grants to sign or renew a lease, most often one or more months of free rent, but also reduced rent, waived fees, or perks. It lowers the tenant's real cost below the asking rent.
How do concessions affect net effective rent?A concession lowers net effective rent by spreading its value across the lease term. One month free on a twelve-month lease at $2,000 asking produces $1,833.33 net effective rent, an 8.3% discount that the face rent hides.
How common are apartment concessions?Per Zillow, 39.3% of U.S. rentals offered a concession in November 2025, with the highest-concession markets including Denver at 68.3%, Charlotte at 66.6%, and Dallas at 64.2%. Concessions reached record levels in 2025.
Related Terms
Net Effective Rent
Asking Rent
Effective Gross Income
Economic Occupancy
Loss to Lease