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Rent and Operating Trends – Week of April 16th 2023

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Rent and Operating Trends – Week of April 16th 2023

Chris Nebenzahl

Chris Nebenzahl

Inflation took a significant step toward returning to normal in March as the CPI registered 5% annual growth for the first time in 2 years. Prices were up only 10 basis points on a month-over-month basis. The rapidly decelerating inflation figures should encourage the Fed to stop monetary tightening and leave interest rates where they are. Even though inflation has not returned to the 2-3% range the Fed is targeting, the trajectory of price growth is clearly slowing down, and further rate hikes will likely slow the economy more than necessary. The Fed will meet next in early May, but going back to Chair Powell’s last press conference in March, he outlined a case for the end to the tightening cycle.

Multifamily fundamentals were mostly flat last week. Rent growth continues onward, as the national average Net Effective Rent approaches $1,900 once again. Traffic and leases continue their steady performance, while occupancy is stable around 94.3%. With short-term interest rates potentially staying flat for the foreseeable future and the 10-year treasury seemingly range bound between 3.5% and 4%, rate stability will bring some deals back to the table. We will likely see transaction activity pick up modestly in the coming months, and then rise significantly at the end of 2023 and into 2024. 3-year bridge loans that closed between September 2020 and March 2022 will start to mature at the end of this year. Also, permanent loans with 5-to-7-year terms that closed between 2016 and 2018 will start coming due at the end 2023. The combination will lead to billions of dollars of loan maturities and force sellers back into the transaction market.

Key Takeaways – Data as of 04/16/2023

Traffic and Leases:

  • Traffic increased marginally nationwide last week as the leading indicator continues to show signs of strength for multifamily.
  • While the weekly data is important to show real time changes in our industry, looking at the annual growth also provides perspective. Over the past 12 months, Orlando and Riverside CA have added almost 2 tours per property per week. Leasing has also increased in each market, and the average property is signing roughly a half lease per week more than this time last year.
  • Orlando ranks as one of the best markets in the nation, averaging 3.2 new leases signed per property per week. Nearby Tampa leads the nation with 3.5 leases signed per property as of last week.

    Occupancy and ATR:
  • The nationwide occupancy rate fell 1 basis point last week to 94.33%.
  • While Charleston and Houston have been performing well from a traffic and leasing perspective, their occupancy rates are among the lowest in the country. As significant new supply comes online, especially in a market like Charleston where new deliveries had been muted in past years, the occupancy rates will likely continue to struggle. Demand is there in both markets, but it will take some time for new supply to be absorbed.

    Net Effective Rent:
  • Net effective rent increased 10 basis points last week nationwide.
  • Gains were once again led by Chicago. While Chicago has historically been the most affordable of the gateway markets, it has surpassed Washington D.C. in average NER.
  • Tampa had a strong week last week, as NER increased 50 basis points. While rents are still down year-over-year in Tampa, the weekly increase is a strong indication of continued demand, following one of the fastest decelerations in rent in the nation last year.

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