Apartment renters are signing longer leases than ever -- often at lower rates than otherwise, allowing property managers to better protect occupancy exposure against oncoming new supply. Win/win.
Average terms for new leases signed in April 2024 hit 12.7 months, down a tick from the long-term high of 12.9 months in February. Average renewal lease terms peaked at 12.1 months in March and matched that number again in April.
By comparison, over the last 10+ years, new leases averaged 12 months and renewal leases averaged 11.5 months. A difference of a few weeks may not seem like a big deal, but it's quite significant in a dataset of millions of leases.
In periods of occupancy uncertainty (such as now given the 40-year high in new supply hitting the market), a common best practice is to incentivize renters to choose a longer-term lease. The renter typically pays a bit less per month than they would on a shorter or traditional-term lease. But the trade-off is a win/win because it means the property manager has fewer expiring leases in the shorter term -- which can be beneficial in a year like 2024 where record supply exceeds even robust demand in many markets.
(Remember: Contrary to social media conspiracy theories, apartment owners make zero revenue on vacant units. Protecting occupancy and minimizing days on market are important strategies, especially in a high-supply environment.)
Among individual metro areas, average new leases in Q1'24 reached 13+ months in a number of high-supplied markets, including Miami, Orlando, Denver, Jacksonville, Raleigh, Atlanta, Charlotte, Tampa and Austin -- and even Los Angeles and Washington DC. On renewal leases, a number of Florida markets ranked among the leaders for longest lease terms.
Among large markets, only two -- Seattle and Sacramento -- had average new lease terms below 12.4 months. Both were 11.9 months. Both also had below-average renewal lease terms. Oakland had the lowest at 10.9 months average renewal lease term.
I'd expect to see longer-term lease remain common through 2024 as supply peaks, and perhaps normalize after that once supply and demand return in balance and occupancy rates stabilize.