Rent And Operating Trends – Week Of December 17th 2023

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Rent And Operating Trends – Week Of December 17th 2023

Chris Nebenzahl

Chris Nebenzahl

As we approach the end of 2023, this week’s report will be our last of the year. As such, I looked back over the prior 51 weeks at some of the key trends, predictions and observations we made to identify where we got it right and where we missed the mark.

From an economic perspective, the year began on very shaky footing. I predicted a continued economic slowdown and a rising potential for a recession. Neither occurred this year, and in fact the macro economy strengthened as the year went on. Inflation came down as we anticipated but it did not negatively impact the employment market, consumer activity or GDP. GDP had its strongest quarter in a few years in Q3.

We anticipated the job market would remain the backbone of the economy and while it has softened this year, overall job growth, especially in light of the low unemployment figures, remains quite strong. I predicted that the Fed would continue raising interest rates and remain reactionary, yet to their credit, they saw the slowing trend in inflation and kept rates constant since July. The illusive soft landing now appears doable, when twelve months ago most economists including myself predicted otherwise.

After three years of volatility in multifamily, I expected 2023 would be a return to normal, with seasonality and supply/demand fundamentals impacting performance. In many ways, this played out and the biggest storyline of the year has been the extreme levels of supply delivered in many markets. Seasonality returned, however the trends were muted by the impact of supply. One major miscue from mid-2023 was my projection that occupancy had bottomed. From January to June nationwide occupancy remained rangebound around 94.3%. I expected an uptick in occupancy as the spring leasing season moved into summer. In reality, however, occupancy started to fall in mid-summer and has been declining steadily since then. As new supply continues to deliver, I now anticipate further drops in occupancy as 2024 begins.

Key Takeaways – Data as of 12/17/2023

Traffic and Leases:

  • Average traffic nationwide is 6.4 tours per property while 2.1 new leases are signed each week nationwide. The year-end conversion ratio is 33%.
  • Year-over-year traffic is down 0.2 tours, while annual leasing has fallen by 0.1.
  • Traffic and leasing were mostly flat last week.

Occupancy and ATR:

  • The national occupancy rate is 93.76% and will end the year 67 basis points below last year’s occupancy level.
  • Most of the year’s losses were seen from August to November.
  • Last week occupancy dipped 1 basis point.

Net Effective Rent:

  • Average net effective rent nationwide is $1,821, down 1.4% from a year ago.
  • Net effective rents increased through the first half of the year, but the seasonal slowdown in the third and fourth quarters wiped out the modest gains seen early in 2024. The seasonality in rent growth is not surprising given new supply, and I would expect a similar trend next year. The supply wave will not dissipate until 2025 at the earliest.

Revenue Per Available Unit:

  • Revenue per available unit is a new metric we released this year and has proven valuable as turbulence in operating fundamentals gripped the market. By combining rent growth and occupancy into one metric, we can see the compounding challenges brought on by the supply wave both at the national level and market level.
  • Nationwide RevPAU is down 2.1% year-over-year.
  • In the hardest hit markets like Austin and Jacksonville, RevPAU has fallen more than 8% from a year ago.

We thank you for your continued support of Radix and hope you enjoy the holidays. Stay tuned for more insight coming your way in 2024!

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