Rent and Operating Trends Week of August 14th



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July inflation came in at 8.5% on a year-over-year basis, and in a sign of the recent times, many economists and wall street analysts celebrated the lower-than-expected report. Economists had anticipated 8.7% price growth following 9.1% in June. As a result, equity markets continued to rebound from early-summer lows. The modest inflation reversal will also likely enable the Fed to continue their aggressive rate hikes, as the recent report provides evidence that higher interest rates are rippling through the economy and slowing price growth.


In the apartment market, operating fundamentals continue to weaken as the summer wears on. For the first time in several years, operators and owners head into budget season with significant unknowns about next year. Occupancy and leased percentages continue to fall and NER has decelerated rapidly to a national growth rate of 5.5% year-over-year. If there is a silver lining in this week’s data, it is that traffic ticked upward slightly after remaining unchanged last week. Traffic had been falling consistently throughout the first half of the year and into the third quarter before pulling out of negative territory the past two weeks.


Key Takeaways – Data as of 08/14/2022


Traffic and Leases:


  • While traffic increased to 8.3 tours per property last week, new leases signed remained flat at 2.6 per property.
  • Traffic increased the most in Nashville last week as the average property had 7.6 tours. Nashville multifamily fundamentals have been trailing their peer markets after having some of the strongest performance of any market in the country prior to COVID-19. Year-over-year rent growth in the Music City is only 2.3%, a staggeringly low growth rate given the market’s employment and migration growth in recent years.


Occupancy and Leased:


  • Occupancy and leased percentages nationwide both fell 3 basis points last week. While the nationwide declines have been very gradual, the trend of falling occupancy has been consistent for much 2022.
  • Only 4 of the top metros registered occupancy increases last week, providing further evidence that the softening is a nationwide phenomenon.
  • On a year-over-year basis, only 5 metros have registered occupancy increases and all 5 are coastal gateway metros where occupancy fell dramatically during the COVID-19 pandemic.


Net Effective Rent:


  • NER nationwide remained unchanged last week as the annual growth rate slowed to 5.5%.
  • Studios continue to outperform larger units, and nationwide studio rents are up 8.6% year-over-year. On a weekly basis, studio rents increased 30 basis points. Demand for more affordable units may be driving the increase in studio rents. After a historic 18 months of rent growth, operators may have reached their limits to push rents. As a result, we will likely see continued softening rent growth and residents potentially trading down into smaller, older, or less amenitized apartments.
  • On an even larger scale, we will likely see continued migration and outperformance in smaller and more affordable markets. Last week, the top three markets for weekly rent growth were Jacksonville, Albuquerque and Charleston, all of which rank among the more affordable markets Radix tracks.


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