Rent And Operating Trends – Week Of December 10th 2023
The Fed is holding its final meeting of the year this week and they are likely to leave interest rates unchanged. After rapidly increasing interest rates through the first half of the year, the Fed has now kept rates stable since July. Many market prognosticators expect rates to drop next year, with some calling for rate cuts as soon as the spring. Given the strength of the economy, I would not expect to see rate cuts until late next year at the earliest. The November Consumer Price Index was released this week, and while inflation inched downward on an annual basis to 3.1%, it remains slightly above the Fed’s target. Higher inflation will keep the Fed from cutting rates, however I do not see this report as a catalyst to raise rates either.
Multifamily fundamentals were mixed last week. Of note, occupancy was flat on a week-over-week basis for the first time in months. One week is not enough to declare a trend, yet stabilizing occupancy would be a great achievement for the industry. Leasing activity was also flat last week while traffic and NER dipped slightly. Another potential point of optimism is that annual growth figures are improving. Occupancy is down only 69 basis points and NER is down only 140 basis points. Both figures were deeper in negative territory over the past few months.
Key Takeaways – Data as of 12/10/2023
Traffic and Leases:
- Traffic nationwide has slowed to 6.5 tours per week for the average property. Leasing activity is just above 2 leases signed per week as the typical quiet winter period continues.
- Sunbelt markets that don’t face challenging winter conditions continue to lead the nation in both traffic and leasing. Texas and Florida markets are benefiting from high demand and domestic migration, and as such are at the top of both traffic and leasing rankings.
- Jacksonville picked up the most traffic last week, adding nearly a half tour per property. The northern Florida metro needs to continue attracting residents as supply is far outpacing demand, leading to average rent declines of 7% on stabilized properties over the past year.
Occupancy and ATR:
- Another Florida market, Tampa, led the national occupancy rankings last week, picking up 9 basis points. Tampa has also been struggling with supply challenges, however the recent performance puts the market back in line with the national average occupancy rate.
- In total, 11 of the 34 markets tracked by Radix Research registered occupancy increases last week.
- Salt Lake City and Charlotte had the largest occupancy declines last week, falling 11 and 10 basis points respectively. As new supply delivers, both markets continue to lag the national average occupancy rate by a significant margin.
Net Effective Rent:
- Net effective rent dipped 8 basis points last week bringing the average NER across the country to $1,821. 5 markets, Minneapolis, Baltimore, Las Vegas, Dallas and Charlotte saw rents rise by roughly 10 basis points last week. All other markets had flat or declining rents.
- The largest drop was in New York, where rents fell 80 basis points. Despite the drop, NYC rents are still 60 basis points above their average from this time last year.
- New York’s northern Gateway peers continue to outpace the nation. Chicago, Boston and Washington DC rents grew at an average rate of 3.3% or more on an annual basis. Occupancy in each market is stable and above the national average as demand is well balanced with new and existing supply.
Revenue Per Available Unit:
- Revenue per Available Unit (RevPAU) fell 7 basis points last week nationwide.
- We have seen significant divergence in market performance this year based on the amount of supply being added. I anticipate this trend will widen next year, as some southeastern markets may see annual RevPAU fall by 10% or more. In smaller markets with limited supply and Gateway markets with steady demand, RevPAU will likely continue to grow at moderate, long term average rates.
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