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Rent and Operating Trends Week of August 28th

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Rent and Operating Trends Week of August 28th

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While the fundamental underpinnings of the U.S. economy did not change as the result of last week’s speech from Fed Chair Jerome Powell, the remarks, and the stern and straightforward tone with which he delivered them indicates that the economy is likely in for a challenging slog. Contrary to typical Jackson Hole Economic Symposium speeches, where Fed Chair’s often discuss at lengths the different aspects of the economy, Powell’s talk was brief and only focused on the Fed’s role in reducing inflation. He laid out a course of action that will likely result in continued steep interest rate increases, and he acknowledged the need for the Fed to raise rates well above what they see as a neutral level. Powell indicated that economic activity, including employment growth may suffer as a result, but that a return to a normal inflationary environment was not only the Fed’s number one priority, but also a necessity to restabilize the economy.


Specific to multifamily, I view the Fed’s rapid tightening of monetary policy to have the most direct impact on the transaction market, although a generally slowing economy will also have an impact on operating fundamentals. As short-term interest rates rise rapidly, the interest expense on floating rate and bridge loans are killing deals nationwide. Buyers and sellers remain far apart on fair market value of assets and as a result fewer apartment trades are closing. The impact of interest rates is felt most significantly on value-add projects and on smaller investors who may not have the ample capital of major institutions. Even so, deals are falling apart in all investment categories and with all levels of multifamily investor. Operating fundamentals remain steady, however recent modest declines will likely continue at least through the beginning of next year.

Key Takeaways – Data as of 08/28/2022


Traffic and Leases:


  • Traffic and leases both remained unchanged last week nationwide, as the leading indicators may have found some stability after months of declines. Roughly 8 prospective renters are touring properties each week.
  • Sunbelt markets led by San Diego and Phoenix are among the only markets in the country currently seeing weekly gains in traffic. This is welcome news for owners and operators in Phoenix, as the metro has registered some of the softest performance comparative to it’s peer markets, over the last 12 months.


Occupancy and Leased:


  • Nationwide, occupancy and leased percentage continues to fall. National occupancy is 95.22%.
  • While occupancy has been declining, modest rent increases over the summer have allowed revenue per available unit (RevPAU) to stay flat for the past few months. RevPAU is up 3.5% compared to this time last year.
  • Occupancy has been falling the fastest in popular sunbelt metros, as historically high rent growth may finally be having an impact on affordability in places like Las Vegas, Jacksonville, and Tampa. RevPAU is down 5.5% in Las Vegas as both NER and Occupancy have taken a hit in the past year.


Net Effective Rent:


  • NER fell 10 basis points nationwide last week, marking the second weekly rent decline this month. Rent growth appears to have run its course, and I expect to see flat or negative rents on a weekly basis for the remainder of this year.
  • Annual rent growth has decelerated to 4.6% nationwide.
  • Rents in the Carolinas remain strong, as annual rent growth in Charlotte, Raleigh and Charleston is above 12%. Factoring in smaller occupancy declines than the national average leaves these three markets among the best performing on a RevPAU basis. All three have annual RevPAU growth above 11%.



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