Rent And Operating Trends – Week Of December 3rd 2023
The U.S. economy was given another boost last week as Q3 GDP was revised upward to an annualized rate of 5.2%, making the rate of growth last quarter more than double the rate for the first half of this year. Q3 was also the strongest quarter for economic growth since 2021 when the U.S. economy was still working through the volatile declines and subsequent growth resulting from COVID-19. Consumer activity remains healthy and the employment market continues its upward climb. November job growth will be released on Friday, but I expect another steady month of job gains. Weekly unemployment claims remain in line with long-term averages.
With inflation coming down and speculation that the Fed has raised interest rates for the last time, the 10-year treasury continues to fall. The 10-year is yielding 4.28%, roughly 75 basis points below its high 6 weeks ago. I expect inflation to moderate further, especially as oil prices have dropped in recent weeks, so it would not be a surprise to see the Fed end its monetary tightening. However, I do not believe we will see a quick reversal in monetary policy. The Fed Funds target rate will likely remain at its current level well into 2024, given the current strength of the U.S. economy.
Multifamily metrics fell across the board last week, led by traffic and leasing. The leading indicators had been flat for some time, but both retreated meaningfully. Some of the decline is likely related to the holidays, however the overall trend stretches beyond a single week slowdown. Rent and occupancy also fell last week as new supply pressure
Key Takeaways – Data as of 12/3/2023
Traffic and Leases:
- Nationwide, traffic dipped by 0.3 tours per property last week. The average property across the country had 6.6 tours. Leasing dropped as well although not as severely as traffic. The national conversion ratio is 31.8%.
- The Florida markets suffered the worst weekly declines in traffic, as Orlando and Miami both lost more than a half tour per property. Orlando also led all markets with the largest leasing decline last week.
- San Francisco was the only market to see traffic increase, as average properties received 0.2 additional tours compared to the prior week. However, traffic in San Francisco remains nearly a full tour per property below the national average.
Occupancy and ATR:
- Occupancy nationwide fell 3 basis points last week to 93.75%.
- A handful of markets, most of which are in the sunbelt, registered slight occupancy gains. Tucson led all markets picking up 11 basis points of occupancy, with Jacksonville not far behind.
- Chicago and San Diego, two of the better performing multifamily markets this year, led the country in occupancy declines last week, dropping 16 and 12 basis points respectively.
- ATR fell slightly last week. Average availability remains at 15 units per property.
Net Effective Rent:
- Net effective rents fell 16 basis points last week. However, the pace of annual rent declines is slowing and NER is down only 1.4% year-over-year, a modest improvement compared to previous weeks.
- Rents are down $53 from their mid-summer highs.
- San Diego rents fell 1% last week alone, the largest drop in the country. However, rent growth remains positive in San Diego on an annual basis.
- Nashville ranked second, as rents fell 50 basis points last week. The continued delivery of significant new supply, especially in the urban core is crushing rent performance in the Music City. Rents have fallen 4.3% across the market over the past year. In the Downtown/West End submarket, rents have fallen 10.3% annually.
Revenue Per Available Unit:
- Revenue per Available Unit fell 18 basis points last week at the national level.
- While 12 markets nationwide have registered positive rent growth on an annual basis, only 9 markets can boast RevPAU growth over the past year, as occupancy declines are more widespread. Only 3 markets, Chicago, Seattle, and Washington D.C. have higher occupancy rates than they did a year ago.
- RevPAU leaders remain concentrated in northern Gateway markets and small southwestern markets, as demand remains steady and new supply has not overwhelmed performance. The new supply wave is still in full force, however there is starting to be some light at the end of the tunnel. Many developers, owners and operators are beginning to discuss market performance in late 2025 and early 2026 when most deliveries will be behind us. Given the rapid slowdown in construction starts, we will likely see a quick rebound in property performance, especially where demand remains elevated.
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