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Fundamentals Remain Steady, but Divergence in Secondary Markets Appears

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Fundamentals Remain Steady, but Divergence in Secondary Markets Appears

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Chris Nebenzahl

When the Fed will cut interest rates is anyone’s best guess as conflicting market indicators continue to muddy the waters of monetary policy decision making. The likelihood of a rate cut in Q2 was dealt another blow last week when the Personal Consumption Expenditures Index came in higher than economists’ expectations. As the preferred inflation gauge of the Fed, the elevated PCE data will likely delay any easing discussion when the Fed next meets this week. However, the post-meeting press conference should give us some insight into how the Fed currently views the interest rate market. With oil firmly rooted above $80 per barrel and consumer spending continuing, I do not expect inflation to fall drastically in the summer months.

Most multifamily indicators were flat last week at the national level as we near the end of April. I anticipate we will see continued modest improvement in overall fundamental performance, yet the pace of growth will likely remain muted. New supply continues to dominate the focus for multifamily operators nationwide, but local demand trends are having a major impact on property fundamentals at the market level. Two peer markets that have been widely discussed from a supply and demand perspective are Austin and Nashville. Recent news of Oracle’s headquarter relocation from Austin to Nashville, along with mass layoffs at the Tesla plant outside of Austin, may drive demand in two separate directions for the popular secondary markets. Job growth and the diversity of the employment market will continue to be key factors in determining the strength of a metro’s multifamily market.

Key Takeaways – Data as of 4/28/2024

Traffic and Leases:

  • Traffic increased slightly last week while leasing remained flat nationwide. Leading the nation in traffic gains was Chicago, picking up nearly a tour and a half per property last week. The traffic gains propelled Chicago into the top 2 markets for total traffic per property.
  • Chattanooga also had a strong week, as traffic jumped by nearly a full tour per property last week. The small Tennessee market made headlines in recent weeks when an auto plant voted to unionize, the first southern auto plant to do so. Yet long before the recent vote, Chattanooga’s multifamily market has been growing, with stable occupancy, tight availability, and steady rent growth.
  • Two small and beleaguered sunbelt markets led the nation in leasing growth last week. Colorado Springs and Huntsville picked up more than a third of a lease per property compared to the week prior. Not only are these markets similar in size and in employment concentration, with large aerospace companies calling them home, but they have also been some of the weakest performing markets in recent months, as swaths of new supply have had drastic impacts on the small metros.


Occupancy and ATR:

  • Nationwide occupancy increased another basis point last week, as the national occupancy rate inches toward 94%.
  • Baltimore and Minneapolis led the nation with occupancy increases of 17 and 15 basis points respectively. Right behind them was Nashville, as the Music City added 13 basis points of occupancy last week. After struggling for months, Nashville’s year-over-year occupancy growth is back in positive territory. We have written extensively about the oversupply challenges in Nashville and the extended recovery the market may be in for. But in recent weeks, the city’s apartment fundamentals have begun to improve quickly. The news of Oracle’s relocation and its dedication to Nashville’s healthcare industry may be the spark the metro needed to return to growth in the apartment sector. The new supply will take time to lease up, but the tailwinds of demand are omnipresent in the Music City.


Net Effective Rent:

  • Rents were flat last week and remain down 1.4% on a year-over-year basis, nationwide.
  • Columbus, OH remains one of the strongest rental markets in the nation, and it once again led all markets in weekly rent growth. Annual rent growth in the Ohio capital is nearing 4%.
  • Nashville’s rent growth was second nationwide last week, with rents picking up 70 basis points. The market still needs to dig itself out of the hole it has been in for months, as year-over-year rent growth remains down 4.6%, but recent indicators are showing positive signs of recovery.
  • On the other end of the spectrum 13 markets saw rents fall last week. Most of these are sunbelt cities, continuing to deal with the pressure of new supply. 4 of the 13 are in Texas, where new supply continues to depress rental performance.
  • I do not view apartment demand as a zero-sum game, especially as new jobs are created at surprisingly high levels each month. However, it appears clear that Oracle’s departure from Austin to Nashville will be a significant net gain for one market, while leaving a void in another. The Austin apartment market will recover, and the local tech market will bounce back, but the downturn is at risk of extending due to economic headwinds in the area.


Revenue Per Available Unit:

  • National RevPAU was also flat last week, and Columbus and Nashville were atop the market rankings once again.
  • With occupancy and rent improving, the annual RevPAU growth rates are starting to show a more balanced picture across the country. 18 of the 45 markets tracked by Radix Research now have positive RevPAU growth on an annual basis, while 27 remain in negative territory. This is a marked improvement from 6 months ago.
  • As apartment fundamentals rebalance and recover, the RevPAU growth will continue in stable northeastern and midwestern markets before moving southward and westward.
  • Our forecasts call for mostly flat revenue growth at the end of this year, before turning positive in 2025.

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