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Economy Remains Robust While Multifamily Focuses on Tenant Retention

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Economy Remains Robust While Multifamily Focuses on Tenant Retention

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Chris Nebenzahl

The macro economy continues to defy economist expectations and remains in very strong condition as we start the second quarter. March job growth exceeded 300,000, making it the strongest month of the year and bringing year-to-date job growth above 800,000. For context, at the beginning of the year, the Wall Street Journal polled 64 economists to get their expectations for job growth this year. 26 of the 64 predicted fewer than 800,000 jobs would be created in the entire year, let alone the first quarter. If the employment market remains on its current pace, multifamily demand should outperform as well, easing the pressure on several apartment operators. Yet the strong economy may also cause the Fed to delay or reduce the number of interest rate cuts this year. A number of Fed governors have spoken recently and shared their intent to keep rates where they are, especially as inflation remains slightly elevated in the 3% range and employment continues to be extremely strong. While many prognosticators expected the first rate cut in May or June, it will now likely be pushed into Q3 or later.

Leading multifamily indicators were flat last week, while rent and occupancy both increased. Ideally for operators, traffic and leasing activity will begin to rise again, as both metrics lag their levels from last year. With asking rents falling in several markets, operators have shifted their focus to retention and renewing leases for existing tenants. As such, occupancy has grown slowly but steadily, while traffic has lagged its normal seasonal levels.

Key Takeaways – Data as of 3/31/2024

Traffic and Leases:

  • Nationwide, properties are averaging 8 tours per week and 2.5 new leases signed per week as of April 7th.
  • 6 markets reached double digit tours last week, led by Houston. The sunbelt region continues to dominate the traffic rankings as 5 of the 6 markets averaging 10 or more tours per week are in Texas, Florida or Georgia.
  • Despite the strong absolute traffic numbers, all of the top 10 markets for total weekly traffic have seen a year-over-year decline in the number of tours per property.
  • Leasing was soft last week as only 7 of the 45 markets tracked by Radix Research saw leasing activity increase. By contrast, 18 markets experienced a weekly decline in the number of new leases signed..

Occupancy and ATR:

  • Occupancy nudged upward by 3 basis points last week as the national occupancy rate nears 94% once again. Most markets gained occupancy last week, further supporting the notion that renewals are increasing. Given the continued pressure from new supply, property operators are likely to incentivize tenants to remain in place this year and into next year. When units turnover, operators will need to absorb the make ready costs and vacancy loss on top of likely renting the unit at a lower rate with a meaningful concession.
  • ATR has also steadily improved this year. The average apartment nationwide has 14 units available to rent over the next 60 days.

Net Effective Rent:

  • Net effective rents grew 10 basis points last week, bringing the national average rent to $1,808.
  • Columbus, OH led all markets, with rents increasing 80 basis points last week. The Ohio capital is also one of the best performing markets over the past year as rents have jumped 4.2%. Columbus, and several other midwestern markets have outperformed the national average and their peer markets in the southeast and southwest, due to limited new supply that has delivered in the region.
  • Austin continues to trail all other markets in rent growth, as NER has fallen 8.3% annually. Other sunbelt markets including Huntsville, Nashville, and Raleigh are struggling, with annual rents falling 5% or more, yet these markets are seeing some modest rent gains in recent weeks as the prime rental season continues.

Revenue Per Available Unit:

  • With both rent and occupancy increasing last week, RevPAU had a strong week as well.
  • Midland and Columbus, two of the strongest markets in the country maintained their place atop the weekly and annual RevPAU rankings last week, but Chattanooga, had a great week with RevPAU increasing nearly 1%. The small Tennessee metro has a very stable multifamily market with occupancy nearing 95% and a closing ratio of 43%, one of the highest in the nation.
  • Austin’s occupancy is just above 92.5% and with the continued decline in rent, there is no surprise the Texas capital continues to struggle from a RevPAU perspective. Long term, Austin will recover, as demand along I-35 will be strong, but the current down-cycle will likely extend for several years.

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