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Rent and Operating Trends Week of December 18th 2022

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Rent and Operating Trends Week of December 18th 2022

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As the holidays approach, this will be the last RAOT report of the year, and we will continue our weekly reports in the new year. First and foremost, we would like to thank you for your interest, your feedback, and your input as we’ve grown Radix and the RAOT report over the past year.
We appreciate all that you do for us!

The U.S. economy will end 2022 in a far different place from where it began the year. There were both expected and unexpected factors that weighed on the economy this year. Inflation began rising last year, and the Fed’s reaction to rising inflation was top of mind for many when 2022 began. True to form, inflation dominated the economic conversation all year. However, we also experienced unexpected and heightened geopolitical tension this year after Russia invaded Ukraine and the global energy and food markets were immediately disrupted. Geopolitical issues in China and other parts of the world have also put pressure on the global supply chain and economy.

We experienced a recession in the first two quarters and have endured the most severe monetary tightening in a generation this year. Equity markets have been volatile, and all major indices entered bear markets this year. Through it all, employment has remained the port in the storm amid the economic challenges, and job growth has continued steadily throughout the year. The pace of growth has slowed, however, given the hawkish monetary policy, and any continued growth is a positive on the job front.

As we shift gears and look ahead to next year, I expect the economy to continue the grind that it’s currently on. I anticipate another recession either in Q4 of this year or in early 2023. Inflation will continue to come down from its June 2022 peak, but the Fed will continue to raise rates, until inflation is dropping quickly and appears poised to return to the 2% level. It will not surprise me if the Fed then must reverse course toward the end of next year and begin dropping rates again.

The multifamily market may not experience the volatility of the overall economy, but I anticipate the industry slowdown will continue through the year. We will likely return to a normal seasonal leasing pattern, with growth in most markets in the spring and early summer. The second half of the year will likely stagnate and fall slightly, as we have seen in many previous years in the apartment industry. All told, we anticipate average rent growth of 1.7% nationwide next year.

Key Takeaways – Data as of 12/18/2022

Traffic and Leases:

  • Traffic nationwide dipped last week and has fallen by more than a half tour per property over the past month. For the better part of the fall and winter, weekly traffic had been higher than a year ago, but last week’s average of 6.5 tours per property was equal to its level in late 2021.
  • The national conversion ratio will end the year at 34%, and while this has come down slightly in recent months, it remains fairly strong, indicating that demand for multifamily has not completely deteriorated.

Occupancy and Leased:

  • The occupancy rate nationwide fell another 2 basis points last week and will end the year roughly 1.5% below its level when the year began.
  • Occupancy in most markets has declined consistently throughout the year, however some coastal markets have seen occupancy level out or even improve slightly this year.

Net Effective Rent:

  • NER fell 10 basis points last week and will end the year around $1,850. While this is still an astonishing average rent compared to the pre-pandemic levels, NER has fallen roughly $75 from its July 2022 peak.

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